Weekly Interest Rate Roundup: May 17 - May 24

It finally happened - one of the big two DeFi money markets turned off incentives. Aave's incentives have expired and there's no plan to extend them. This marks yet another blow to the humble yield farmer in what is shaping up to be a very tough year.

It will be interesting to keep an eye on whether Aave is able to retain its stablecoin supply. I think it probably will. Ultimately there isn't really any other DeFi option that provides the same security and liquidity profile besides Compound and Curve, and both of these venues offer comparably low yields.

I would argue that a venue like Notional is on par with Compound and Aave from a security standpoint and so its rates offer good value. To date though, we've seen that users have placed a lot of value on the liquidity/optionality that they get with Compound or Aave vs Notional.

fCash is liquid and can be exited at any time, but there is a small transaction cost for doing so and mark-to-market valuation fluctuations to consider. This friction has justified a decent spread between Notional's rates and the money market rates which are freely redeemable at zero cost.

But I think that the bear market will cause that spread to compress. After all, what is optionality worth when there aren't any juicy yield opportunities to shift into anymore? Fixing your USDC lending rate at 4% is starting to look pretty good the way things are going.

Teddy