Notional V2 Deprecation Plan

The Notional DAO recently voted to deprecate Notional V2 on Ethereum and launch Notional V3 as a new deployment. This blog post will give more details on the deprecation plan and how it will affect current Notional V2 users.

Plan overview

Notional V3 is scheduled for deployment on Ethereum on March 25th. Starting today, we are implementing measures to incentivize users to migrate from V2 to V3 and wind down Notional V2 entirely over the course of the next 3.5 months.

Here is a rough outline of the steps we’ll undertake in the deprecation of Notional V2.

Disable functionality that allows users to deposit more into Notional V2 or increase the outstanding debt on V2.
Redirect liquidity incentives from Notional V2 to Notional V3.
Swap all borrowers above a certain size from Notional V2 to Notional V3.
Liquidate small, remaining borrowers on Notional V2.
Convert Notional V2 into withdraw-only mode.

Impact on Notional V2 borrowers

Unlike other lending protocols, Notional V2 does not have a variable rate lending market. This means that there is no natural mechanism to incentivize borrowers to repay their debts as depositors exit the protocol. This is a problem - if borrowers don’t repay, depositors will be unable to withdraw for an undetermined amount of time.

For this reason, we will take proactive measures to ensure that debts are repaid and depositors can withdraw as we wind down Notional V2. We will attempt to make these measures minimally disruptive by swapping borrowers from V2 to V3 in all cases where it is practical.

Mechanically, this will involve Notional administrators withdrawing borrowers’ collateral from V2, depositing it into V3, opening up a variable rate debt position on V3, and using the borrowed cash to repay the debt on V2.

There will be some borrowers that have small debts which we will not swap to V3. For these accounts, the cost associated with swapping them from V2 to V3 will be highly uneconomical. So for small borrowers that have not closed their positions by a deadline we announce in June, we will liquidate them at no penalty to the market rate and allow them to withdraw their net collateral balance.

We will publish more in-depth details regarding the process of swapping larger borrowers and liquidating smaller borrowers in the coming months. Specifically, we will publish concrete dates and size thresholds below which borrowers will be liquidated.

Indicative timeline

Below is a rough timeline of events related to the planned deprecation of V2. This timeline is subject to change. Any changes will be accompanied by notice to ensure that users have sufficient time to take any necessary action.

March 7th

Disable nToken minting on Notional V2.

March 17th

Disable borrowing on the Notional V2 UI.
- Existing borrowers will still be able to manage their debts. This action will only disable establishing new debts or increasing current debts.

March 25th

Reduce liquidity incentives on Notional V2 by 50% across all tokens.
Increase collateralization requirements for borrowers on Notional V2 by 10% - 15%.
Start incentivizing liquidity on Notional V3.

April 1st

Reduce V2 liquidity incentives to 0 on wBTC
Reduce V2 liquidity incentives by 80% on USDC and DAI
Reduce V2 liquidity incentives by 90% on ETH

May 1st

Swap large V2 borrowers from Notional V2 to Notional V3.
Borrowers that have been swapped to V3 will retain full access to their assets at all times.
Reduce V2 liquidity incentives to 0.
Disable lending on the Notional V2 UI.

June 17th

Announce plan to liquidate remaining borrowers on Notional V2.

June 24th

Liquidate remaining borrowers on Notional V2.
Convert Notional V2 into withdraw-only mode. At this point, there is no more debt in the system and all users have fixed balances which they can withdraw without any slippage or liquidity constraints.

Please reach out on the Notional discord if you have any questions about the V2 deprecation process or need assistance with migrating from Notional V2 to Notional V3.

The Notional Team