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January 26, 2024

Weekly Market Recap: January 26, 2024

It was an active week at Term with seven auctions cleared and over $2.5mm in total volume spread across both USDC and ETH loans. In the USDC lending markets, Term saw demand from (i) new users looking to borrow against wBTC, and (ii) new users looking to borrow against wstETH (but at higher than standard LTV). With competition heating up for available supply, lending rates are beginning to converge towards those available on the established variable rate platforms, while still offering significant savings to both lenders and borrowers. In the ETH lending markets, most of the action was centered around Term’s new auctions backed by’s weETH liquid restaking token. In total, 273E cleared at healthy ~10% real yield to ETH lenders across both a standard 4 week and longer 22 week (matching Pendle weETH principal token) maturity.    

Variable Rate Markets

USDC Markets

In the variable rate markets, USDC rates are beginning to fall off a cliff, declining by -54bps from  8.90% to 8.35% on a 30-day trailing basis on the week.  

Consistent with falling borrow rates, intraday volatility has also fell significantly this week. Intraday peaks exceeded 10% only a few times in the past few days and did not once exceed 20%. This is in stark contrast to the past few weeks where 20%+ intraday peaks seemed to be the norm.  

Aave’s recent upgrade raising the base rate at the 90% utilization kink to 6% is likely a key driver of these market dynamics. Combined with a deleveraging in crypto markets perps and futures markets pushing borrowing demand down in DeFi, the higher Aave base rate has led to a more stable price discovery process on Aave. As evidence of this, this past week was the first week in nearly a month where the 7-day trailing utilization rate Aave held below the 90% on every single day throughout the week.

ETH Markets

Turning to ETH borrow rates, rates on Aave V3 continued to fall, albeit at a slower pace of -7bps on the week to close at 2.43% on a 30-day trailing basis, consistent with the CESR Staking Index that continues to decline with reduced network activity. The CESR  Staking Index finishes the week down -11bps to 3.69% vs 3.79% the week prior.

The continued decline of the 30-day moving average, however, obscures a recent tick up in borrow utilization (up 5% on the week) and spot ETH borrow rates on Aave that close the week at 2.50% up from 2.31% the week prior.

With crypto perp and futures markets cooling down as a result last week’s minor deleveraging process and a hike to Aave’s base rate to 6%, expect market volatility to decline in the near term and stabilize in the 5%-6% range.


Lastly, turning to the flow side of the equation,  stable-coin supply increased by just under $4 billion across all networks. USDT continues to account for the lion’s share of stable-coin inflows, though Circle’s USDC also saw decent inflows of around ~$600 million.

Ethereum mainnet continues to be the largest winner across networks. Over the intervening month, Ethereum saw +$2.5 billion in stable-coin inflows and the trend continues upward though it appears to have tapered to some extent in recent weeks.

With spot crypto markets finally seeing a minor correction and futures basis/perp funding rates on the decline, expect DeFi rates to follow suit in the short term.

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