Galaxy: Bitcoin futures basis surges, market optimism reignites

Peisen

24-08-10 10:30

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Original title: "Bitcoin Futures Basis Spikes with Renewed Market Optimism"

Original author: Alex Stan, Galaxy

Original translation: Peisen, BlockBeats

Editor's note:

Alex Stan analyzed several key market dynamics and trends in depth and pointed out that the Bitcoin futures basis fluctuated sharply, especially before and after the BTC Nashville event. This change highlights the changes in short-term cash costs and market imbalances. Aave governance's reduction in lending rates reflects adjustments to market conditions and a reduction in interest rate arbitrage opportunities.

In addition, the rapid growth of assets and market acceptance of BlackRock's tokenized Treasury fund BUIDL reflects the market's demand for safer investment alternatives. The sharp drop in Ethena’s yields shows how volatility in yields and changes in market structure can affect performance in a market environment that is highly dependent on positive funding rates.

Key Points:

· Market Dynamics: Bitcoin Futures Basis Soars

· Trends: Aave Governance Cuts Best Borrow Rate

· Trends: Tokenized Treasuries Demand Rise

· Trends: Ethena Yields Fall After Highly Anticipated Airdrop

Market Dynamics

In July, Bitcoin experienced significant price volatility, with prices dropping to lows below $55,000 and subsequently rising to over $70,000 before losing momentum. This volatility can be attributed to multiple factors, including reduced selling pressure from the German government and Mt. Gox. However, the main reason for this wave of gains was due to market anticipation for the highly anticipated event, BTC Nashville.

Prior to this event, the annualized basis of front-month Bitcoin futures rose sharply, resulting in increased short-term cash costs. The Bitcoin basis reflects a strategy associated with market neutrality, in which the price of futures contracts is significantly higher than the spot price, providing traders with an opportunity to buy spot Bitcoin and short futures to capture the spread. Before the event, the annualized basis yield of Bitcoin futures once exceeded 40%, but stabilized at around 8% after the event.

In addition, Bitcoin funding rates on major exchanges also rose, but to a lesser extent, highlighting the imbalance between long and short positions in the perpetual futures market. This imbalance also led to an increase in short cash rates.

Key Trends We Track

Aave Governance Reduces Best Borrow Rate from 9% to 6.5% in Response to Decline in Dai Savings Rate (DSR)

On July 25, Aave governance approved the “Stablecoin Interest Curve Amendment”, a proposal to reduce the cost of borrowing on the protocol. The adjustment reduces the best borrow rate from 9% to 6.5% while keeping the best utilization rate unchanged. This change affects the USDC, USDT, DAI, and FRAX markets in Aave Ethereum V3 and V2.

These updates, and others like them, were driven by multiple factors, two key ones being reduced interest rate arbitrage opportunities and better alignment with overall market conditions. Interest rate arbitrage refers to borrowing at a lower rate and entering a market neutral position with a higher yield. This practice is common in DeFi and other markets where an asset on one platform may be out of line with the price of the same asset on another platform. Such arbitrage opportunities often occur between the two largest on-chain money markets, Aave and Maker.

In March, Maker increased the Dai Savings Rate (DSR) in response to DAI selling pressure triggered by Ethena and yields from staking Ethena USD (sUSDe). This adjustment resulted in a significant arbitrage opportunity between Aave's lending rates and the yield on staked DAI. In response, Aave increased its best yield to 14%. As sUSDe yields stabilized and the market recovered, Maker began to reduce the DSR, which is currently 7%. To remain competitive, Aave has adjusted its lending rates based on the DSR and Maker's stability fee.

This change has been positively received, reducing the cost of leverage in DeFi. In July, total USDC liquidity on Ethereum Aave V3 increased by $160 million from $1.37 billion to $1.53 billion. At the same time, utilization rose from 87.7% to 89.9%, showing that strong borrowing demand outstripped supply growth, most likely due to the decline in borrowing rates.

BlackRock’s BUIDL Fund Market Value Continues to Rise, Reflecting Growing Demand for Tokenized Treasuries

BlackRock’s tokenized treasury fund, BUIDL, continues to grow in both total locked value (TVL) and number of holders. Since April, the fund has seen assets grow from $280 million to nearly $520 million, an increase of $240 million. This growing interest has come primarily from on-chain participants looking for safer alternatives to traditional DeFi yields while still wanting to enjoy the benefits of instant settlement.

Ethena’s yields dropped to low teens after airdrop

A few months ago, Ethena’s yields were around 30%, but have now dropped to the low teens. The change comes after a highly anticipated airdrop that encouraged users to exchange protocol tokens for yield. In addition, the drop is in line with the general trend of declining funding rates in the market. Ethena was originally launched during a period of significant funding rate increases in March, when the market was performing strongly. As the market structure changed, Ethena’s yields also dropped significantly, as its model is highly dependent on positive funding rates.