CoinDesk Indices, Sentora Unveil Stablecoin Overnight Rates to Mirror Money Market Tools

CoinDesk Indices and decentralized finance (DeFi) specialist Sentora are introducing a benchmark tied to overnight stablecoin lending rates, bringing on-chain markets one step closer to mainstream money markets.

The CoinDesk Overnight Rates (CDOR) are designed to transform real-time borrowing activity into standardized rates, giving trading firms, exchanges, and protocol treasuries a way to hedge interest-rate exposure or fix funding costs over time, the companies said in a Tuesday press release.

The benchmarks will initially draw from Aave lending pools for USDT and USDC, the two most widely used stablecoins. They are calculated and published daily, based on the platform’s variable borrow rates.

Stablecoins, a $250 billion class of digital tokens pegged to traditional currencies like the U.S. dollar, are key pieces of infrastructure underpinning the crypto economy. They are a popular vehicle for trading and on-chain transactions and are increasingly used for cross-border payments and foreign exchange.

Read more: Stablecoins Could Bring 'ChatGPT' Moment to Blockchain Adoption, Hit $3.7T by 2030: Citi

As stablecoin adoption accelerates with more institutions and businesses getting involved, so the demand for sophisticated tools that mirror mainstream financial markets is growing.

"Stablecoins are expected to grow into the trillions, but there is no institutional-grade money market for trading and hedging term rates," said Andy Baehr, the head of product and research at CoinDesk indices "CDOR rates provide a cornerstone element for the stablecoin rates markets, using the same conventions as traditional finance benchmarks, which support the largest derivatives markets in the world."

Futures contracts that settle against overnight rates are also in the works, with Galaxy, FalconX, Flowdesk and Tyr Capital set to act as market makers, the press release said.

"CDOR rates enable the creation of a broad range of financial derivatives that are currently missing in the crypto financial ecosystem," said Ed Hindi, chief investment officer at Tyr Capital. "This addition alongside a clearer regulatory environment should exponentially increase the interaction of institutional players with DeFi."