Risk response to USDC Depeg

In the last 24 hours, USDC and DAI have lost their peg. Despite the extraordinary circumstances, Notional has not seen any insolvencies or increased system risk. All funds are safe.

However, due to our integration with Compound V2, Notional’s operations have been impacted. Late Friday night, the Compound V2 pause guardian disabled the minting of cUSDC due to a technical issue on Compound V2. This creates problems for Notional - without the ability to mint cUSDC on Compound, users are unable to deposit USDC as collateral or repay USDC debts on Notional. All other assets are fully functional and users can withdraw USDC as normal, but they can’t deposit.

Immediate risk mitigation

Due to the issue with depositing USDC on Notional, we will be making USDC collateral parameters more conservative to discourage USDC debts for the time being. Roughly 24 hours from the publication of this notice, at 5 PM Eastern March 12th, the USDC collateral haircut will be updated from 0.92 to 0.80 and the USDC collateral buffer will be updated from 1.09 to 1.20. This will make USDC collateralization parameters roughly twice as conservative as they are today.

As of this moment, this change will only result in the liquidation of one account on Notional, but we recommend that all accounts with USDC as collateral or debt review their position and add collateral if necessary.

If user accounts are liquidated as a result of this change and Notional Inc executes the liquidation, Notional will reimburse the liquidated account less the gas cost of the transaction. Though it should be noted that liquidations are public, so Notional Inc might not be the liquidator in all cases.

Medium-term mitigation

In the medium-term, Notional will pull its USDC off of Compound V2 if the protocol does not unpause. The Notional team is currently developing this fix and is in the process of testing it. Once the fix is fully tested, we will push the upgrade. At the conclusion of this process users will be able to deposit USDC on Notional again and the protocol will be fully operational once more.

If you have any questions, please feel free to reach out in the Notional discord.

The Notional Team