In a significant move towards mainstream adoption of DeFi and stablecoins, CoinDesk Indices and DeFi specialist Sentora have announced the introduction of a new benchmark tied to overnight stablecoin lending rates. The CoinDesk Overnight Rates (CDOR) are designed to transform real-time borrowing activity into standardized rates, providing trading firms, exchanges, and protocol treasuries with a way to hedge interest-rate exposure or fix funding costs over time.
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.
As stablecoin adoption accelerates with more institutions and businesses getting involved, 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, 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."
In addition to the CDOR rates, 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. "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."
The introduction of CDOR rates is a significant step towards mainstream adoption of DeFi and stablecoins, providing a much-needed tool for institutions and traders to hedge their interest-rate exposure and fix funding costs over time. As the crypto economy continues to grow and evolve, it is clear that tools like CDOR rates will play an increasingly important role in supporting the development of a robust and liquid DeFi market.
