IN THIS ISSUE

💸 USDh powers Zest liquidations
🤑 First Velar yield payout
💰 USDh yield recap
☎️ Hermetica Hangout: Zest
📈 Weekly market review

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USDh Powers Zest Liquidations

We’re excited to announce that USDh now powers liquidations on Zest.

This integration bridges CeFi liquidity to Stacks DeFi by using USDh in Zest’s liquidation process, allowing them to scale sBTC-backed loans and jumpstart the BTCfi flywheel.

USDh powered liquidations have already unlocked over $1M in additional USDh on Zest Protocol, increased the borrow cap by 300%, and enhanced your ability to borrow USDh against sBTC.

Take part in the evolution of Zest, powered directly by USDh:

First Velar Yield Payout

April 16th marked the very first yield payments to everyone who used USDh as collateral on Velar’s PerpDEX.

Traders who opened long positions with USDh began receiving weekly rewards at a 5% yield, paid automatically.

These payouts represent the first of many weeks of ongoing, on-chain yield for those powering Bitcoin DeFi with USDh.

USDh Yield Recap

This week, everyone turned their logo into a furry version.

While some protocols were brushing digital fur, USDh was brushing off market noise and printing 10% yield like a well-groomed alpaca.

Hermetica Hangout: Zest

This week, we hosted Zest Protocol on Hermetica Hangouts to break down how USDh powers Zest liquidations. We discussed how it helps scale sBTC-backed loans and strengthens DeFi on Stacks. Listen to the recording here.

Next week, we’re rolling out a big update, and yes, it’s connected to Hermetica 2.0. Set your reminder, you’ll want to be there.

Market Review

Bitcoin traded in a range between $79,600 and $86,600 this week, with lower intra-week volatility compared to recent weeks. Market rates (funding rates, basis spread, options premium, etc.) moved higher, particularly in the front maturities. Funding rates were slightly positive on net, peaking over the weekend (Saturday and Sunday) and dipping into negative territory on Tuesday.

The equal-weighted average basis spread increased by 1.11%, rising from 4.45% to 5.56%, driven by gains at the front end of the curve. Bitcoin’s implied volatility (DVOL) currently sits at 47.43%, trending back toward the multi-month low of 45.42% observed on March 27, after briefly spiking to 62.5% last week.

Altcoins saw modest gains, with aggregated market caps increasing from $931.04B to $950.44B week-over-week. Despite the recovery in alts, Bitcoin dominance rose by 0.52% to 63.85%—its highest level since March 2021. Dominance has been steadily climbing since December 2022. Over that time, the long Bitcoin / short altcoin trade has remained one of the strongest-performing and lowest-volatility strategies in the market.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $84,399

• 30-Day MA: $83,598

• 180-Day MA: $90,525

• 360-Day MA: $76,755

• 200-Week MA: $45,905

Bitcoin remains 6.61% below its 180-day (6-month) moving average (MA), having fallen beneath this key long-term trend indicator over a month ago. It is currently trading 0.17% above its 7-day MA and 1.13% above its 30-day MA, signaling some short-term support. Bitcoin also remains above both the 1-year (360-day) and 200-week MAs. However, the broader trend remains bearish until the price decisively reclaims the 180-day MA and both short-term MAs from below.

Bitcoin downside levels: $84,000, $82,500, $78,500, $76,000, $67,000, $65,000

Bitcoin upside levels: $109,500, $105,000, $102,000, $99,500, $98,000, $96,000, $92,000, $88,000

Trend Following

Returns for Bitcoin 7-day and 30-day long trend-following portfolios are down 22.99% from local highs reached in late January. This marks the steepest decline in trend-based strategies since April 2024, when losses exceeded 25%.

The sustained drawdown—now entering its second month—points to a broader deleveraging phase across crypto markets. Much of the excess Bitcoin leverage has been flushed out during this period. A strong macro catalyst could quickly shift momentum, as sidelined traders may look to re-enter and releverage into a recovering market.

Liquidations

Bitcoin long liquidations across all exchanges fell to $166.57 million this week, down sharply from a monthly high of $755.52 million (adjusted) last week. Liquidations below $250 million are typical during quieter weeks, suggesting a return to more stable market conditions.

BTC ETF Flows

Net outflows since Friday, March 28, totaled $12.7 million. Daily net flows have remained muted throughout the week, with last Friday seeing just -$1 million and Monday recording a modest $1.5 million inflow. Overall, flow activity this week has been the least volatile since the final week of March.

Volatility

Bitcoin’s implied volatility (DVOL) currently sits at 47.43%, placing it in the bottom 4.1% relative to its average level over the past year. For most of the last 10 months, DVOL has ranged between 50% and 70%, and it has once again dipped below the bottom of that range as markets settle following last week’s activity. Historically, DVOL exhibits strong mean-reversion behavior when nearing the extremes of this range, suggesting a local bottom could be near.

Basis Spread

The basis spread, the premium of futures prices over spot, is positive across all maturities. On average, basis spreads rose 1.11% week-over-week, climbing from 4.45% APR to 5.56% APR. The futures curve remains in a typical contango structure, with the front-month contract (April 25) yielding the lowest rate at 4.25% APR, and longer-dated maturities rising from there. The spread between the highest- and lowest-yielding contracts narrowed to 2.4%, down from 6.87% last week, when the front-week maturity briefly dipped to -0.25%.

Although basis rose across the curve, the gains were concentrated in the front-month contracts. APR for the April and May contracts increased from 2.71% to 4.28% and from 4.40% to 4.66%, respectively. Market makers typically use front-end contracts to hedge spot exposure, while speculative traders focus on longer-dated maturities. The steepening at the front of the curve suggests selling pressure has eased and some net long demand for spot is returning following last week’s turbulence.

The current curve remains neutral to bearish in the near-term.

An upwards sloping normal contango, or where the front part of the curve is above spot but below more distant maturities, signals weak demand for spot buying. By contrast, the futures curve from January (Figure 9) was in a steep downward sloping contango which indicates high demand.

The most bullish futures curve configuration is a downward-sloping contango, where the APR of front-month futures exceeds that of longer maturities. This dynamic suggests high immediate demand and is often driven by market makers using front-month contracts to hedge short-duration exposures while maintaining delta neutrality. The steeper the front-end premiums relative to the back end, the more optimistic the near-term outlook.

Macro

Since taking office on January 20th, President Trump has ushered in a broad shift in U.S. geopolitical policy, emphasizing domestic industrial support through tariffs and redirecting military assets. Among these changes, tariffs have emerged as the most visible and consequential.

Two weeks ago, the administration surprised markets with tariffs exceeding most forecasts. However, last Wednesday the administration announced a 90-day delay in implementing most of the new tariffs following a sharp dislocation in the Treasury bond basis trade.

Canada reversed its retaliatory tariffs last week, leaving China as the sole respondent. The current U.S. tariff rate on Chinese goods stands at 145%, with China's counter-tariff at 125%. At these levels, trade volumes are unlikely to shift further, as tariffs become functionally prohibitive. In response, China has introduced non-tariff barriers, including bans on U.S. films and restrictions on rare earth exports.

Late last Friday, the U.S. announced exemptions for smartphones and semiconductors. However, this week saw new restrictions targeting the export of Nvidia chips to China, particularly those capable of training large AI models.
On March 19th, the Federal Reserve held its second FOMC meeting of the year. The Fed left interest rates unchanged but announced a significant reduction in quantitative tightening, cutting monthly Treasury redemptions from $25 billion to $5 billion starting in April.

The European Central Bank responded to the changing trade environment by cutting rates by 25 basis points on Thursday, citing concerns about the deflationary impact of U.S. tariffs on European exports.

In the U.S., December SOFR futures are now pricing in a 75 basis point rate cut by year-end—up from 50 basis points prior to the recent tariff escalation. Last week’s dislocation in the Treasury bond-SOFR swap basis trade caused sharp upward pressure on yields, with 10- and 30-year bond rates climbing to 4.52% and 5.03%, respectively—their highest levels since the Fed's last rate hike in October 2023. Yields then dropped following the 90-day tariff delay, with 10- and 30-year rates falling to 4.33% and 4.81%.

Immediately after the tariff announcement, bond markets rallied. From Wednesday to Friday’s close, 10- and 30-year yields dropped from 4.13% and 4.49% to 3.86% and 4.33%, respectively. However, by the start of this week, SOFR swap spreads had begun widening again, contributing to further stress in basis trades.

Despite increased demand for cash, the U.S. Dollar Index (DXY) has declined by 4.14% since the initial tariff announcement and is currently at a three-year low of 99.37. Historically, simultaneous declines in the dollar and asset prices have been early signals of economic recessions, as seen in 2001 and 2007.

Market volatility remains elevated. Equity volatility, as measured by the VIX, and Treasury bond volatility, as measured by the MOVE index, spiked following the tariff news and remain high despite the delays. The VIX currently stands at 29.66, down from a peak of 41.51, while MOVE is at 119.4, down from 128.35. These levels reflect heightened uncertainty, with the VIX reaching its highest point since August 2024 and MOVE hitting levels not seen since the end of the Fed’s hiking cycle in 2023.

Sincerely,
The Hermetica Team