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April 5, 2024

Weekly Market Recap: April 5, 2024

Fixed rates for stablecoins on Term continue to trade rangebound, dropping back down to 11% fixed for a four-week term.  This marks the fourth week that stablecoin rates have fluctuated between 11%-12% on Term and is consistent with spot ETH and BTC markets that continue to trade in a range. Term’s first bomb-pot auction was successful in bringing in new supply, lenders who were assigned received an additional +12% in wstETH rewards just for participating! In ETH markets, Term saw a strong uptick in demand to borrow against weETH as the LRT narrative continues to be the driving force in ETH denominated yield farming on-chain.

Variable Rate Markets

Basis and Perpetuals Markets

Futures and perps basis implied funding rates are taking a breather with perp funding rates falling -3.67% on the week, while 3-mo basis stabilized rising just +0.88%. Spot perp funding rates got as low as 8% mid week but close the week just above 11%.

DeFi rates continue to move in line with derivatives funding rates with no noticeable divergence despite the recent decline in perp funding.

USDC Markets

In the variable rate DeFi markets, USDC borrow rates fell on the week, declining by -84bps from  13.48% to 12.79% on a 30-day trailing basis.  

Consistent with falling rates and declining borrow demand, intraday volatility fell sharply over the past week — the past five days saw intraday peaks in the 10-15% range down from regular spike through 20% in the few weeks prior.

In the near term, keep an eye on all time highs in BTC. Until the market takes its next leg up expect rates to remain in equilibrium.

ETH Markets

Turning to ETH lending markets, rates on Aave V3 are stabilizing, closing down just -1bps on the week at 2.49% down from 2.50% the week prior on a 30-day trailing basis. CESR staking rates, on the other hand, continue to decline falling -5bp on the week from 3.51% down to 3.46% on account of continued staking inflows.

As has been a common refrain in recent newsletters, ETH utilization on Aave remain rangebound around 80% with just a minor dip this past week.

Overall, increasing staking supply driven in large part by inflows into LRTs to farm Eigenlayer and LRT airdrops continues to exert downward pressure on ETH staking rates. A recent post by researchers from the Ethereum Foundation suggest that this dynamic is likely to continue and have highlighted concerns around a regime where LSTs and LRTs become the defactor native ETH currency given high opportunity costs to holding native ETH.

Looking forward

With the first leg of this bull-run apparently having reached its peak, DeFi and derivatives funding markets are finally getting a chance to take a breather. Expect stablecoin rates to remain stable in the near term but keep an eye on spot BTC and ETH markets for the next leg up where rates will inevitably heat up once more.

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