Quarterly Market Review: Q4 2021

As this quarter comes to a close and we prepare for Notional V2's first quarterly roll, we wanted to update everyone on the activity on the platform since launch. Notional V2 launched on November 1st and we saw a lot of activity right out of the gate. In just two months, we executed over $244M of loans!

Overall, activity on the platform was skewed to borrowing crypto. We saw a lot of interest to borrow crypto at fixed rates which resulted in the DeFi interest rates offered on Notional to reach as high as 12% on DAI and USDC before lenders pushed them back down. But although there was more borrowing than lending, volumes were still decently well balanced, with a grand total of $130.2M borrowed vs $114.1M lent.

Here are the headline stats for the two months that Notional V2 was live this quarter:

System-wide (USD):
Total value locked: 559.6M
Total loan volume: 244.3M
Total borrow volume: 130.2M
Total lend volume: 114.1M

Per currency loan volumes (USD):
USDC loan volume: 131.8M
DAI loan volume: 107M
ETH loan volume: 2.1M
wBTC loan volume: 3.4M

Per currency nToken returns (annualized, excluding incentives):
nUSDC: 2.58%
nDAI: 3.54%
nETH: 0.19%
nwBTC: 0.37%

As expected, the vast majority of activity centered on Notional V2’s DAI and USDC markets. Together, these markets accounted for ~98% of total loan volume across the platform. Here is a bit more detail about the loan activity in each currency and how that activity influenced the different yield curves.

USDC:

Loan volumes in the USDC markets skewed toward borrowing, with the majority of the activity focused on the 3M tenor. Here are volumes by tenor for USDC over the quarter, split out between borrowing and lending:

Early interest from borrowers in the 3M and 6M tenors produced USDC’s inverted yield curve, where the shorter-dated maturities offered higher interest rates than the longer-dated maturities:

DAI:

Loan volumes in DAI were roughly balanced between lending and borrowing. This back and forth activity caused nDAI holders to see organic returns that were ~0.5% higher than Compound over that period of time. The lending and borrowing volume was also relatively evenly distributed across tenors - here is the breakdown:

Interestingly, the DAI yield curve is even more inverted than USDC despite the rough balance between borrowing and lending at each tenor:

This is likely because the borrowing came early on after launch when there was little liquidity whereas the lending came later, after more liquidity had come into the protocol. Because there was little liquidity to begin with, this early borrowing interest pushed rates up a lot. Once the lending started to occur, there was more liquidity in the protocol and the same amount of volume had less of an effect on the level of interest rates.

ETH and wBTC:

The activity in ETH and wBTC was limited, but in each currency the majority of the activity was borrowing that was concentrated on the 6 month maturity. DeFi interest rates are low for ETH and wBTC - for both currencies, the available interest rates for borrowing are <3%. Here are the loan breakdowns by tenor for each currency and the yield curves:

ETH breakdown:

wBTC breakdown:

Summary:

Q4 2021 was a great first quarter for Notional V2 and we are excited to increase Notional's growth in the quarters ahead. If you want to be a part of the Notional community and shape the protocol's future, follow us on twitter or join us in discord. Happy holidays everyone!

The Notional Team