DeFi Stablecoins Record a Surge in Interest Rates, Total Stablecoin Supply Grows 4x in 8 Months


Lending and borrowing rates on DeFi stablecoins keep trending up.

The rates first started going up in late July when the crypto asset prices bottomed and began their recovery.

As crypto-assets started their uptrend, funding rates also gradually increased as traders joined in on the action. This, in turn, helped the interest rates climb up.

Not to mention, ever since the March 2020 crash, the crypto market has skewed towards fiat or stablecoin margin perpetual contracts rather than coin margin ones, amplifying the demand for stablecoins.

Currently, the lending rate for USDT is 5.58% on Compound, 11.53% on Aave, and 3.01% on Cream Finance, while the borrowing rate is 7.41%, 14.52%, and 8.51%, respectively, according to Skew.

Meanwhile, Compound pays a lender 5.39%, Aave 7.87%, Cream Finance 10.53%, and dYdX 1.97% for USDC while to borrow USDC, one is charged an interest rate of 7.18%, 9.72%, 15.49%, and 6.62% respectively.

Meanwhile, the total stablecoin supply has now reached $120 billion, up from less than $30 billion at the beginning of this year.

Tether continues to lead, accounting for just 58.4% of the stablecoin market, followed by USDC’s 23.4%. While USDC has gained a 9% market share, USDT has lost a whopping 16.58% of its market share in 2021.

Besides USDC, BUSD also captured this lost market share from USDT, currently at 10.48%, gaining a 6.77% share. Maker’s DAI also saw some increase, but it wasn’t much as at the beginning of 2021, it was sitting at 4.14%, and about eight months later, it is at about 5.4%.

While USDT is losing its market share, it accounts for the highest volume. In the last 24 hours, USDT did nearly $91.4 billion in trading volume, more than double of Bitcoin’s.

After USDT, Binance’s BUSD has the second-highest trading volume of any stablecoin at $9.6 billion, followed by USDC at $2.86 billion.

USDC, which is developed by Circle – a consortium of Coinbase and Center, is particularly used in the decentralized finance (DeFi)

Recently, Circle said that from September, all the reserves backing USDC would be shifted into cash and short-term U.S. Treasuries, forgoing riskier investments. Back in July, Coinbase ran into criticism over its claim that every USDC was “backed by a dollar in a bank account” when Circle revealed in its report that since May, its reserves had included commercial paper and corporate bonds.

With stablecoins becoming an integral part of the crypto market, it is gaining the attention of regulators.

Stablecoins are at the target of SEC, as explicitly stated by Chairman Gary Gensler several times in the past few months. Gensler had said that stablecoins are embedded in centralized and decentralized exchanges crypto trading and lending platforms and may be used to

“facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, sanctions, and more.”

Amidst this, the Federal Reserve is considering a digital dollar, but according to Ryan Selkis of Messari, the US should be adopting the stablecoins rather than a “Fedcoin” as central bank digital currencies (CBDCs) will face red tape, poor execution, endless committee meetings, and vague deliverables with untracked results.

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