Weekly Stablecoin Rate Overview

Teddy Woodward
Teddy Woodward

Hello world! This is the first in a weekly series of DeFi stablecoin interest rate market overviews. Each week, we will present the main DeFi interest rates in USDC and DAI along with an attempt to explain how those rates have changed over the last week and why. No one knows for sure what makes markets move - we can only offer speculation. But we think that our perspective as builders in the DeFi lending space gives us valuable insight into these markets that isn't available to everyone, so we wanted to share it. Enjoy!

Recursive lending rates on Compound and Aave have ticked up slightly over the last week. This is likely due to the increase in the prices of COMP and AAVE. As some readers may know, returns to the recursive lending strategy are heavily dependent on token incentive prices - as token prices go up, recursive lending returns go up too, more or less.

In contrast however, the supply rates on Compound and Aave have actually decreased over the last week which suggests that the latest mini-bull run has yet to produce any additional demand for borrowing against crypto assets like ETH or wBTC. This is counter to what we might expect - in general, demand to borrow against crypto increases when prices are rising because users want to go levered long. So far, this doesn't appear to be happening. Make of that what you will.

Further out the curve, we've seen USDC rates on Notional take a big step toward coming into line with other rates across DeFi. The 3-month USDC fixed rate is ~1% lower than it was last week. This has led to a "humped" USDC yield curve where the 6M rate is higher than both the 3M and the 1Y rate. Over time we expect this to normalize and the yield curve to return to its regular inverted shape.

DAI rates on Notional have stayed stubbornly somewhat higher than USDC. The DAI fixed rate curve is roughly half a percent higher than USDC. We're not sure why that is, however a possible explanation is that the fixed rate product appeals more to holders of USDC than it does to holders of DAI. It will be interesting to watch this spread between DAI rates and USDC rates to see if it persists going forward.

Elsewhere in DeFi, rates on Element and Yield have remained near zero. These low rates likely reflect user expectations of future airdrops. We expect rates on these platforms to remain low for the immediate term.


Interest Rate Report

Teddy Woodward

Co-Founder and CEO