DeFi Lending protocols often quote 2 different rates for a specific cryptocurrency: a supply rate and a borrowing rate.
Based on the rates published by the most popular protocols, we build a composite rate index representing the lending and borrowing levels across major stablecoins. This is displayed in the chart below:
- The 'Bid' timeseries is a composite of annual supply rates across the major stablecoins.
- The 'Ask' timeseries is a composite of annual borrowing rates across the major stablecoins.
- The 'Mid' is the average rate of 'Bid' and 'Ask'
'Bid' and 'Ask' timeseries are calculated as weighted averages across platforms and stablecoins:
$$ \frac{\sum_{p, ccy}^{}{T_{p, ccy} \times R_{p, ccy}}}{\sum_{p, ccy}^{}{T_{p, ccy}}} $$
where:
- \(p\): platform or protocol, example: Compound
- \(ccy\): stablecoin, ex: USDT
- \(T_{p, ccy}\): total supply or borrows for platform \(p\) and stablecoin \(ccy\)
- \(R_{p, ccy}\): lending or borrowing annual rate for stablecoin \(ccy\) in platform \(p\)
On occasion, the composite bid index can be higher than the composite ask for stablecoins, despite this almost never being the case if you look at lending/borrowing rates for each stablecoin and/or protocol individually. In general, this inverted relationship on the composite rate happens when a particular protocol has an abundant supply but very low levels of borrowing. When this happens there is a large impact on the composite bid index relative to the ask, as shown in the following example: