Building core infrastructure for the DeFi ecosystem has always been Notional’s main focus, through bear and bull markets. Notional’s robust fixed rate money market is the basis on which a wide range of fixed income products can be built. We’re excited to see this vision come to fruition, and gather momentum.
With the recent release of wrapped fCash - Notional’s core building block becomes DeFi’s easy-to-integrate building block, further strengthening Notional’s position as DeFi’s gold standard in fixed rate lending and borrowing.
To review, fCash is how Notional keeps track of who owes and is owed what, and when. Wrapped fCash bridges the native ERC1155 token to ERC4626 and ERC20 - which unlocks fCash to be used as high quality, income-producing collateral with a host of potential use cases. Think: more fixed rate income in DeFi indexes, fixed rates in yield aggregators, fcash on Uniswap/Balancer, zk lending, etc. etc.
Let’s take a look at three live (and coming soon) integrations building with Notional’s fixed rates.
Live since early Q2, users on Yield, another fixed rate protocol in DeFi, can use Notional fCash as collateral to borrow USDC and DAI. While there are currently only 3m maturities on Yield, the similar maturity dates mean there is no need to worry about interest rates changes or fluctuations - they’re both fixed, after all.
Adding fCash as collateral on Yield accomplishes several important things for Notional and the DeFi ecosystem:
- Increase lending demand on Notional by adding utility and liquidity to the position
- Non-liquidatable collateral: Borrowers using fCash on Yield will not be liquidated, as fCash value increases over time
- Give users the ability to arbitrage between Notional and Yield, extracting value while making interest rates in the ecosystem more efficient
- Increased lending demand on Notional also makes borrowing even more attractive by pushing rates lower
We expect fCash to be recognized as high quality collateral throughout DeFi, and in many ways, it makes sense that the first to recognize its full potential would be another fixed rate protocol building on Ethereum.
Similar to the Yield integration, FIAT DAO’s launch marked the first large-scale attempt to bring more utility to fixed rate positions more generally. By accepting collateral from several fixed rate protocols as backing to mint $FIAT (which aims to trade around $1), FIAT DAO potentially unlocks endless opportunities to get leverage on a fixed rate lend position.
The Balancer USDC/FIAT/DAI pool currently has nearly $4.5M in assets, so there is ample opportunity to trade FIAT for other stablecoins that are widely accepted throughout DeFi. $FIAT itself also aims to be more widely adopted across the ecosystem.
Yield strategy: Lend DAI 1Y on Notional at 5%, use fDAI as collateral to mint $FIAT, then LP in the balancer FUD pool (FIAT/USDC/DAI) to earn $BAL rewards for an additional 10-30% APY.
CONTANGO (coming soon)
Contango describes itself as “the first non-custodial DeFi exchange to offer expirable futures (i.e. instruments with a known settlement date) via fixed-rate markets without an order book or liquidity pools.” By integrating with Notional, Contango is able to price futures by replicating their cash flows via spot and fixed rate markets.
When a trader opens a position, under the hood the protocol borrows on the fixed-rate market, swaps on the spot market, then lends back on the fixed-rate market, thus synthetizing a futures position.
To achieve this, Contango uses "zcTokens" (as in zero-coupon bond Tokens) from the fixed rate markets, like Notional fCash. In addition, since borrowing on Notional and Yield requires overcollateralization, in order to achieve leverage, Contango uses the flashswap function on Uniswap.
From their post, “Contango first gets ETH from the flashswap, lends it on the fixed-rate markets, uses the resulting zcDAI from lending as collateral to borrow DAI and gives those DAI back to Uniswap, all in one transaction.”
What Does it all Mean?
As the fixed rate protocol with the most liquidity, Notional will continue to be the natural best-fit for most of the projects looking to build on fixed rates. Not only that, but when these projects build integrations with multiple fixed rate protocols, Notional will likely be the greatest beneficiary and natural source of yield as one of the only protocols with both borrowers and lenders.
Increased usage benefits Notional LPs and the protocol itself earn a 30bps (annualized) fee, which flows to the treasury and may be used for continued reinvestments into the $NOTE staking Balancer pool, where APYs are already steady at a healthy ~50% with ongoing reinvestments. Everybody wins with more high quality, core infrastructure for the DeFi ecosystem.
About Notional Finance📈
Notional is the first decentralized, Ethereum-based protocol for borrowing and lending at fixed rates and fixed terms. With variable rate lending, DeFi can only serve a small segment of the crypto lending market because variable interest rates don’t provide the certainty that lenders and borrowers require. Notional fixes this by creating a true market for lenders and borrowers that empowers individual investors, business owners and institutional investors.
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 on 11/1 with a host of new features as well as the $NOTE governance token. Notional is now a top 10 DeFi lending protocol with more than $500M in total lending volume.
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