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March 22, 2024

Weekly Market Recap: March 22, 2024

Fixed rates for stablecoins on Term declined -100bps on the week to 11% fixed for a four-week term. This decline is much more muted than the sharp decline seen in perp funding rates, down -20%, given the steep selloff in BTC and ETH over the past week. In a surprise move, Maker DAO partially reversed course on their Accelerated Proposal on March 8  that raised rates by nearly +10%. Via an Executive Vote earlier this week, Maker announced that they would be cutting stability fees (borrow rates) by -200bps on all Maker vaults (and Spark), likely in response to this week’s sharp and sudden decline in funding rates.  With such volatile rates in DeFi, Maker governance is tasked with the unenvious job of trying to see into the future. Its precisely in times like these where Term’s market based approach of setting rates via auctions really shines.

Variable Rate Markets

Basis and Perpetuals Markets

Futures and perps basis implied funding rates continue rise on a 30-day trailing basis but at a muted clip, +2.07 and +0.11% for 3mo basis and perpetual funding, respectively. Spot perp funding rates are down sharply from a 30%-60% range the week prior to a significantly lower range of 10-25% this past week.

This abrupt and sharp drop in DeFi funding rates saw rates between DeFi and derivatives markets converge (though not in the expected direction).

USDC Markets

In the variable rate DeFi markets, USDC rates continue to increase, rising +89bps from  12.11% to 13.00% on a 30-day trailing basis, albeit at a slower pace.  

Consistent with markets that are slowing down, intraday volatility in stablecoin borrow rates declined significantly over the past week.

For cues on how DeFi funding rates will move, keep an eye on the overall spot ETH market. Correlations are running high.

ETH Markets

Turning to ETH lending markets, rates on Aave V3 close the week down -7bps on the week. ETH borrow rates closed at 2.55% on a 30-day trailing basis, roughly consistent with CESR staking rates, which fell -2bp on the week.

Market internals show that ETH utilization continues to fall, though this dynamic seems to be bottoming out.  

Overall, ETH lending markets remain relatively stable and are likely to continue to remain so in the near and medium term.

Looking forward

It is hard to say how long the recent market correction will last but if it is anything like the dip in late January this respite may be very short lived. One thing is for certain, given the rollercoaster rates seen over the past couple of months it may be worth locking in rates whether you’re a borrower or a lender for some peace of mind.

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