Announcing Notional V2.1 Release

I’m excited to announce the release candidate for Notional V2.1. This release adds the ability for Notional to list aTokens in Aave v3 for fixed rate lending and borrowing, a treasury management module for NOTE staking and a number of fixes and improvements to nTokens and our incentive issuance mechanism. The changes in this release have been audited by Consensys Diligence. The changes to the codebase can be seen here.

Aave v3 Support

Notional V2 lends all deposits on Compound to ensure that capital is always being utilized efficiently. Notional V2.1 extends this support to Aave.

Aave support will enable Notional to list a wide variety of assets for lending and borrowing that are not currently available on Compound. In addition, this upgrade will lay the groundwork to deploy Notional on Layer 2 blockchains where Aave is available (Compound is currently only available on mainnet). Aave v3 support will become active pending the Aave v3 deployment to Ethereum mainnet.

Treasury Management

Notional V2 has been generating significant revenues since launch. As one of the largest lenders on Compound, Notional has accrued 7,470 COMP tokens worth $768,000 at time of writing. Notional V2 has also accrued reserves in ETH, DAI, USDC and WBTC as the result of revenues from lending and borrowing. The newly-deployed treasury management module enables these profits to be extracted into the Notional treasury and sold strategically to benefit Staked NOTE holders.

Incentive Issuance

The incentive issuance calculation in Notional V2 contained a bug that erroneously diluted nToken holders during periods of large TVL spikes. We’ve upgraded this calculation to match the mechanism used in Sushi Swap. This new calculation is not subject to erroneous dilution and nToken holders who were diluted will receive an airdrop. Exact details for claiming this airdrop will be provided in the near future.

Affected nToken holders do not need to do anything as a result of this change. Once activated, we will take a snapshot of nToken holder’s incentives under the old calculation. From that point forward, the new calculation will begin to accrue on top of the old calculation.

nToken Redemption

Every quarter, there are residual fCash balances as a result of trading in the DAI and USDC 1 year maturities. This 9 month fCash is idiosyncratic (it does not align with any of the actively traded markets) and is held by nToken holders. Proper management of these residuals is critical for maintaining capital efficiency as we look to extend Notional’s fixed rate to 2 year terms and beyond.

In Notional V2.1, we’ve changed the algorithm for nToken redemption to allow for redemptions even in the presence of fCash residuals. If there are no residuals, nToken redemptions work as they did before. If there are residuals, nToken holders will pay a slight penalty upon redemption if they do not also take the illiquid fCash.

A snapshot vote on the system upgrade is currently live. If passed, we plan to upgrade the contracts before the end of the month.