DAI and USDC lending rates on Defi systems are around 10%. Considering the current low yield on most investment classes and upcoming negative interest era, we can just say that these are good yields.

**But why are these lending rates around 10%?**

Well, it’s about “*following the money*”.

It’s about who are the biggest clients for borrowing? We suspect that these are the **margin traders on the central crypto exchanges**.

These exchanges with margin lending features have their P2P margin lending marketplaces, where lenders can lend assets and margin buyers can borrow the assets. These marketplaces have their interest rates and our thesis is that these **margin trading loan interest rates are driving as well the Defi interest rates**.

We look at:

- Current borrowing rates in Defi
- Outstanding loans in Defi
- Margin lending rates from BitFinex
- Outstanding loans from Bitfinex

After this initial number crunching, we will discuss what it means and we will discuss our thesis that the interest rates of the crypto exchanges margin programs are the leading factor for the Defi interest rates.

# Current borrowing rates in Defi

Here are the borrowing rates from the https://loanscan.io for the USDC (asset-backed USD stable coin, issued via Coinbase and Circle) and DAI (algorithmic USD stable coin, smart contracts created by the MakerDAO).

The **borrowing rates are for the last 3 months** are following:

*Source: **https://loanscan.io/borrow/historical?interval=3m*

*Source: **https://loanscan.io/borrow/historical?interval=3m*

# The current volume of outstanding loans in Defi

Here is the amount of loans outstanding via https://loanscan.io:

So, there are **145 mUSD outstanding loans** in the Defi protocols as per now.

# Margin lending rates from Bitfinex

** **We use for the margin lending rates Bitfinex because this data is publicly available. The following chart shows the USD borrowing rates on Bitfinex P2P margin lending/borrowing marketplace. The bold line shows the so-called “volume-weighted average” and the blue bars show the daily range of marketplace rates.

*Source: **https://bfxrates.com/*

The interest rates are daily, to translate them to annual interest rates let’s multiply them with 365 and we get** circa 10% annualized interest rates**.

# The volume of Margin Lending on Bitfinex

The margin lending volume for Bitfinex is public. Here is the latest data:

*Source: **https://www.bitfinex.com/stats*

We see **circa 400 million USD open positions**. That’s only on Bitfinex. Adding data from other exchanges is difficult because this data is not public. But let’s calculate with 10 active margin lending programs from ca 250 exchanges listed in the CoinMarketCap and we can speculate that the total open position is between **1 billion USD – 4 billion USD**.

# Reflection

Here are our **key findings**:

- The interest rates for USD based stablecoins and USD are
**circa the same in Defi and BitFinex** - The outstanding loans in BitFinex margin lending are
**2.5 times bigger**than all outstanding Defi loans - The outstanding loans of all crypto exchanges margin lending programs are
**ca 10 – 20 times bigger**than the Defi outstanding loans.

Which leads us to the key question of this article – **why are the Defi interest rates ca 10% for DAI and USDC?**

The answer is in “follow the money”. It’s because the **leading market is the crypto margin lending market**. That’s the market, which sets the interest. The Defi market just follows.

We speculate as well, that biggest part of Defi borrowing will be allocated into the crypto margin trading. Either via the central exchanges or the decentral exchanges.

If interest rates between the crypto exchange margin programs and Defi would be different, then there would be arbitrage possibilities – the borrowers would borrow on the platforms, which offer less interest and the lenders would lend on the platforms, which offer more interest. This human behavior would move the markets back into the equilibrium.