Welcome to another DeFi Markets Update—your no-nonsense briefing on the cryptobanking plumbing and market pulse.
USDC Lending Rates Converge Across Morpho and Aave
Over the last month, USDC lending rates on Aave Ethereum have been converging with our Steakhouse Prime USDC vaults on Morpho across Base and Mainnet.
This is because throughout Aug-Sep, Aave has been manually increasing borrow rates to boost lender yields. On V3, Aave has also raised the base USDe borrow rate from 0% to 5.25%, pushing borrowers out of USDe and into other stablecoins, with roughly 30% of the repaid USDe debt of $360m, reappearing as USDC borrowing.
Moreover, the period of lower and more volatile yields on Aave V3 happened due to borrow rates being set lower in March, which kept borrowing cheaper to attract more borrowers but also meant lower rewards for lenders. Meanwhile, V4, as a fairly new market, had limited available liquidity in a much smaller, capped pool, so rates were more volatile. Small changes in deposits or borrowing moved utilisation sharply and created shortlived yield spikes up and down.
On Morpho, thanks to higher usage, steady borrowing demand and enough supply to meet it, yields have been more stable overall and have continued to lead the four compared rates. Steakhouse Prime USDC Base has been and still is the highest yielding of the four rates compared, supported by strong continued cbBTC borrowing demand.
Cheap Borrowing on Arc Morpho
Arc launched about a month ago, and its largest BTC-backed stablecoin markets are already among the cheapest comparable markets on Morpho. The borrow rates are lower because they are temporarily capped by the current interest rate curve. This should be adjusted automatically over the upcoming weeks, but until then the opportunity remains available to arbitrage.
You can borrow USDC and EURC for 1.96% and 2.06%, respectively. There is already around $180m borrowed in USDC and just over $1m borrowed in EURC. Most of the USDC borrowing came in very quickly, crossing $150m within the first week.
Arc is still a very new chain and continues to gain traction, so it is encouraging to see borrowing remain this cheap while liquidity and market usage continue to grow.
Negative USDG Borrow Rates and HY Vault Performance on Kamino
USDG incentives are now live for borrowers in the PAXG market on Kamino, with $100k of USDG rewards being distributed over the next three months. The rewards currently push the net borrow rate negative, meaning borrowers are effectively being paid to borrow USDG.
The PAXG market uses PAXG as collateral and USDG as the debt asset, and it is already seeing solid usage with $1.89m supplied and $1.67m borrowed. The current borrow APY is -4.3%.
Additionally, our Steakhouse USDG High Yield vault continues to earn above 7%, with a 90-day average of 7.55%. The vault now has over $47m supplied and $43m borrowed, making it one of the largest Kamino vaults and the 4th biggest by deposits.
The vault also has a new integration with Reflect, powering both its Protected and Amplified products, with $250k and $50k pre-deposit caps respectively.
