Analyzing Notional Finance
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Notional is a decentralized protocol for fixed rate, fixed term lending and borrowing of crypto assets on Ethereum. Users can lend or borrow stablecoins like USDC and DAI at fixed rates of interest for terms of up to six months against a variety of assets as collateral.
In this article, I’ll be going through the statistics of Notional’s protocol, accompanied by various views and dashboards created from public data sources like Dune, Messari, Flipside and also Notional’s very own historical data explorer, to support the same. Notional’s historical data explorer allows for users to download historical data of different metrics, enabling quicker and easier analysis of trends and patterns.
Talking about the platform first, version 1 of Notional Finance was developed and launched in early 2020, however it gained traction in late 2021 since its v2 was released. This is evident from the following two views, which shows the Userbase and Total Value Locked of Notional V2 over time.
fCash tokens acts as building blocks of the Notional platform. They are basically receipts of one’s transactions on the platform and are used to represent a claim on a positive (lending)or negative (borrowing) cash flow at a specific point of time in the future. These fCash tokens are always generated in pairs, positive for assets and negative for liabilities, which always net to zero.
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Notional also has its own AMM that enables for seamless lending and borrowing. Users can also choose to enable liquidity for tokens in return for passive returns through nTokens. Each asset has its own nToken and they are interest bearing, transferable and also can act as high quality collateral on the platform. From the following view, it is evident that the users prefer to provide liquidity with stablecoins, most probably to avoid impermanent loss that the volatility of ETH and WBTC bring with them.
The same also applies to fCash, as seen from the view below, which basically points to the fact that users prefer to interact with Notional (lend, borrow or provide liquidity) in stablecoins over ETH and WBTC.
Governance on Notional is done with the help of their token, NOTE. NOTE holders can propose, vote on, and implement changes to Notional system parameters and smart contracts. Each NOTE holder gets one vote per NOTE that they hold. The following view gives a representation of NOTE’s price:
NOTE holders can also can stake their NOTE tokens to receive Staked NOTE tokens (sNOTE), which lets their earn yield on their NOTE, as well as contribute to the security of the Notional protocol and provide liquidity for the NOTE token. To earn sNOTE, users have to convert their NOTEs to 80/20 NOTE/WETH LP tokens on Balancer. sNOTE can then be used to redeem the deposited assets and is also transferrable. The following view shows the variation of sNOTE price:
Notional Finance is undoubtedly one of the promising platforms to transact in stablecoins, be it lending or borrowing, in the Ethereum blockchain. They have a transparent governance system and also offer various methods to the users to earn interest and yield on assets that they own. However, they don’t do so great in non-stable assets, WBTC and ETH. Considering their successful history with stablecoins, Notional should look at incorporating more stablecoins to their portfolio, preferably starting off with USDT, to provide their users with more options. Incorporating multichain support in the future could also do wonders for the protocol by tremendously increasing their userbase and allowing for them to reach out to a wider audience.
Their protocol reserves also say the same regarding their promising nature:
What Notion holds for its users in the future should be really exciting to wait form, with all the potential that this platform has to literally go to the moon! 🚀
