Stablecoin borrowing charges have climbed to double digits on main lending protocols, with excellent loans rising 20% to $8 billion in 2024.
As Bitcoin approaches all-time highs and altcoins warmth up, stablecoin liquidity is fetching a premium throughout DeFi.
The price of borrowing main stablecoins USDT and USDC towards crypto collateral has spiked into double digits on main DeFi lending protocols. USDT and USDC charges spiked to 16% and 17.7%, respectively, on AAVE V3, whereas DAI lending charges on Compound V2 soared to fifteen.8%. Stablecoin lending charges in DeFi protocols had been trending beneath 5% for a lot of the bear market.
On Aave, the biggest cash market with over $16 billion in whole worth locked (TVL), borrowing charges had been larger solely in March 2023, when the collapse of Silicon Valley Financial institution precipitated a short-lived liquidity crunch.
Excellent loans have surged by 20% for the reason that begin of the yr to $8 billion, in line with information from IntoTheBlock.
In a bull market, having liquidity readily available is paramount since profitable buying and selling alternatives can current themselves at a second’s discover. On the identical time, merchants may not want to promote their core positions in Bitcoin or Ether, for instance, since they’d seemingly incur sizable tax liabilities given the current runup in costs.
One resolution is to borrow stablecoins towards present belongings and use that liquidity to take part in different alternatives, which might clarify the rise in borrowing prices.
It’s price noting that DeFi merchants look like much more conservative than the leveraged degens buying and selling on centralized exchanges (CEXs). Whereas yesterday’s bout of volatility resulted in over $1 billion of CEX liquidations after funding charges spiked to multiyear highs effectively into triple-digits, DeFi was barely affected since collateral ratios are larger.
Certainly, information from BlockAnalitica reveals that almost all collateralized debt positions on Aave stay well-capitalized, with main liquidations anticipated provided that asset costs drop 30% or extra.
