📊 Monthly Protocol Stats
-Jan 1. TVL: $55,065,000
-Dec. Loan Volume: $23,300,000 ~$2M of borrowing from leveraged vaults
-Protocol Revenue: $13,720 in trading fees and $19,500 in COMP incentives. Total: $33,220
-Current Lend (ETH 3M) APY: 5.46%
-Current LP (DAI) APY: 5.64% (.94% variable +4.71% NOTE rewards)
-Dec 24 maturity and roll successfully occurred - leveraged vaults beta users were also able to roll positions to the next 3M maturity for the first time without issue.
-🎉Notional received an additional $37.5k in grants from the Balancer team to cover audit costs associated with the upcoming Bal/Aura stablecoin strategy leveraged vault.
-🐛The stablecoin strategy leveraged vault audit contest is currently live with Sherlock!
Teddy's 2022 Recap
Notional accomplished a lot in 2022. In its first year in operation, Notional V2 achieved ~$660M in total loan volume, attracted as much as $975M in TVL at its peak, and established itself as the leading fixed rate lending protocol by a wide margin. We lost most of that TVL over the course of the year, but proved that Notional V2 works well and that the protocol is secure and safe for large, risk-averse lenders, even in times of extreme volatility.
From a development standpoint Notional launched two major products - the NOTE staking module and the initial Balancer/Aura leveraged vault. The NOTE staking module has facilitated 345.5 ETH in reinvestments, sustainably incentivized NOTE liquidity, and provided $2.3M in insurance capital for Notional users. Leveraged vaults have recently launched in beta and have contributed ~$3M to outstanding debt so far and will be an increasingly large part of Notional’s overall outstanding debt going forward.
2022 exposed two main areas that Notional needs to improve upon to achieve lasting success.
- Generating borrow demand. Many users value fixed borrowing rates - but so far, fixed rate borrowing on Notional has a lot of drawbacks relative to borrowing on other platforms. The fixed rate borrowing UX is more complicated, the rates are higher, and fixed term loans are less flexible than variable rate, open term loans. These drawbacks have deterred a lot of users and hindered Notional’s growth.
- Increasing organic LP returns. Notional relies on LPs to provide liquidity to Notional’s markets and make it possible for users to lend and borrow. Without LPs, no one can use Notional. To date, Notional has relied heavily on NOTE incentives in order to attract and retain LP capital because organic LP returns have been poor. This is unsustainable. Increasing organic LP returns is necessary for Notional to achieve protocol sustainability and strong organic growth over the long term.
These challenges are not new, and the Notional core team has been working on solutions to them for months already. We expect that further leveraged vault development and increased variable rate yields on Notional will drive substantial progress toward overcoming these challenges in 2023.
We believe that 2023 will be a strong year for Notional and that the protocol will be able to achieve strong organic growth and economic sustainability by the end of the year.
To these ends, we are setting the following goals for 2023.
- Increase outstanding debt from $21M to $150M. Increase protocol fee revenue to $1.35M per year.
- Increase organic LP returns and decrease NOTE liquidity incentive emissions by 70% to 3.9M NOTE per year.
With the products that we have already shipped and the features that are currently in development, we believe we’re on the right track to hitting these targets and setting Notional up for strong, organic growth in 2023.
ICYMI: To read the full post, including a full breakdown of Notional's financial situation and outlook, click here.
Notional FAQ - Why Lend $ETH Fixed on Notional Instead of Staking?
Notional's Next Leveraged Vault Release: Stablecoin Strategy
With the code currently under audit, the Balancer/Aura boosted stablecoin LP strategy is likely on the near horizon. Here's an overview:
- Users will borrow DAI/USDC from Notional to deposit into a strategy that puts the DAI/USDC into the Balancer Boosted stablecoin pool, stakes the LP tokens on Aura, and periodically harvests the incentives.
Here's a reminder of what's happening when you use Notional's leveraged vaults, using the stablecoin strategy as an example:
In this strategy, USDC is placed into the Balancer boosted pool, the LP tokens are then staked in Aura, and the incentives are periodically harvested and reinvested.
To initiate the position, the user brings 100k USDC initial capital to Notional. The user then borrows 700k USDC from Notional at 4% fixed for three months and deposits a total of 800k USDC (100k initial capital + 700k borrowed) into the vault.
Over the three month term, the vault earns an average of 8% APY, turning 800k into 816k. At maturity, the user pays off the debt + interest on notional (707k USDC) and keeps the remaining 109k USDC. This nets the user a 36% APY on their 100k USDC over the three month term.
The vault user is able to earn outsized returns on their USDC by taking advantage of the fact that Notional’s borrow rate is lower than the rate they have earned on the strategy. But the strategy involves risk - the user can also lose money if the strategy fails to return enough to cover the interest rate they’ve paid on their debt. The more leverage the user takes on, the greater their potential upside and downside.
The first leveraged vault ETH/wstETH Balancer/Aura strategy is live now in beta at beta.notional.finance/vaults
About Notional Finance📈
Notional is the #1 Ethereum-based protocol for borrowing and lending at fixed rates and fixed terms. With more than $675M in total fixed rate lending volume, Notional is now a top 10 lending protocol providing core DeFi infrastructure.
Notional’s latest product launch, leveraged vaults, launched in beta in Q4 2022. A new DeFi primitive built on fixed rate borrowing, leveraged vaults execute specific yield strategies while collateralizing the vault assets, allowing users to maximize capital efficiency by taking up to 10x leverage.
After raising a $10 million Series A in May 2021 from some of the top VC firms, including Coinbase Ventures, Notional’s protocol was relaunched in November '21 with a host of new features as well as the $NOTE governance token.
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