Crypto Leverage Reset and Its Effects on Funding and Lending Yields

Summary

This monthly market commentary links a sharp crypto price decline in January to liquidations, falling open interest, and weaker demand for leverage. It reports that BTC, ETH, and SOL funding rates moved from elevated December levels into negative territory, while ETH open interest contracted sharply during the selloff. The report interprets these changes as a reset in leveraged positioning and a contributor to lower cash borrowing rates.

Key ideas

• A sharp price decline triggered substantial long liquidations and reduced outstanding leveraged positions.
• Funding rates for BTC, ETH, and SOL weakened and ended January negative, suggesting diminished demand for leveraged longs.
• Aave Ethereum V3 USDC supply rose as borrowing fell, reducing utilization and pushing borrow rates lower.
• sUSDe yields declined as futures funding rates fell, while its reported total value locked remained relatively stable.
• The commentary describes a single month and does not establish that these relationships will persist.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.