Applicant Name: Teddy Woodward
Project Name: Notional Finance
Project Description: Notional is the leading fixed rate lending and borrowing protocol on Ethereum and has recently gone live on Arbitrum in Beta. Notional is focused specifically on DeFi power users and leveraged yield strategies. We aim to provide both active and passive DeFi users access to high single-sided yields through leveraged integrations with other protocols on Arbitrum.
Team Members and Qualifications:
Teddy Woodward: Co-founder and CEO
Jeff Wu: Co-founder and CTO
PY Gendron: Risk analyst
James Wei: Smart contract engineer
Matt Garrett: Frontend engineer
Michael Burkett: Design
Isaac Petsch: Design
Arbitrum Beta Site: arbitrum.notional.finance
Do You Acknowledge That Your Team Will Be Subject to a KYC Requirement?: Yes
Requested Grant Size: 500,000 ARB
Grant Matching: Yes. Notional will incentivize pools with $NOTE alongside $ARB over the course of the grant. Notional will contribute 585,000 $NOTE in liquidity incentives between October 25th 2023 and January 31st 2024.
Grant Breakdown: The purpose of this grant would be to incentivize liquidity providers on Notional and help kickstart the growth of the protocol on Arbitrum. This grant would both incentivize new users to try Notional as well as encourage Notional’s userbase on Ethereum to bridge their funds to Arbitrum.
These incentives will help Notional deliver high, single-sided yield to the most popular assets in DeFi which will support liquid, fixed-rate lending and borrowing markets to Arbitrum users and attract capital from other chains.
Funding Address: 0xbf778Fc19d0B55575711B6339A3680d07352B221
Funding Address Characteristics: The funding address is a 2 / 3 Safe controlled by the Notional Core Team.
Contract Address: The airdrop contract we would use to distribute the ARB incentives is not currently deployed but we would plan to use this Merkle distributor: https://github.com/Uniswap/merkle-distributor/blob/master/contracts/MerkleDistributor.sol.
Objectives: The primary objective of this grant is to bootstrap initial liquidity for Notional V3 on Arbitrum. Specifically, we would aim to generate fixed rate liquidity for stablecoins, ETH, wBTC, and LSDs.
The liquidity that Notional would attract via this grant would produce the following benefits for Arbitrum users and the Abritrum ecosystem:
Deep and liquid markets for fixed rate lending and borrowing of the most popular crypto assets. This does not exist today and would be a net new product offering for the Arbitrum ecosystem.
Deep and liquid leveraged yield opportunities that are built on fixed rate leverage and utilize other Arbitrum ecosystem projects like Balancer and Curve to source yield. This would also be a net new product offering for advanced DeFi users on Arbitrum. Additionally, the liquidity deployed into these leveraged vault products would directly increase liquidity for the Arbitrum ecosystem projects that the vaults are integrated with. (Background on leveraged vaults: Introducing Leveraged Vaults)
The grant would produce high, single-sided yield opportunities for both active and passive DeFi users which would help attract more capital to the Arbitrum ecosystem from other chains.
Key Performance Indicators: We will use three KPIs to track the success of this grant:
- Notional TVL.
- Total open debt.
- Leveraged vault TVL.
TVL growth will show whether this grant has been successful in attracting capital to Notional. Total open debt will show whether the capital that has been attracted has been utilized. Leveraged vault TVL will show how much of the capital that has been attracted has been deployed onto other Arbitrum protocols to increase their liquidity.
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?: The liquidity that this grant would help Notional attract would have immediate benefits to Notional users as well as longer-term benefits to the Arbitrum ecosystem at large. The immediate impact for Arbitrum users would be deep and liquid fixed rate lending and borrowing markets for the most popular crypto assets. This gives Arbitrum users new and attractive options to manage their interest rate risk, both as lenders and borrowers.
Longer-term, liquid markets on Notional contribute to the Arbitrum ecosystem via Notional’s leveraged vault integrations. Leveraged vaults allow users to borrow from Notional and deploy the borrowed capital into DeFi-native yield strategies that utilize one or more external protocols.
Leveraged vaults give active DeFi users highly leveraged exposure to the yield of the strategy and directly increase the availability of capital and liquidity for external protocols that are used in the strategy. Additionally, usage of leveraged vaults increases interest rates on Notional via borrowing and makes high, single-sided APYs available to Notional lenders at fixed or variable rates.
Notional currently supports leveraged vault strategies built on Balancer/Aura and Curve/Convex. This means that some of that liquidity that flows to Notional via this grant will be redeployed to Balancer and Curve via Notional’s leveraged vaults and will transform the yields on those DEXes into single-sided lending yields for passive DeFi users on Notional.
Notional is currently working on integrating more protocols on Arbitrum via leveraged vaults and should support more strategies by the end of the year. This means that the liquidity attracted to Notional from this grant would help to support a growing number of Arbitrum projects and strengthen the overall Arbitrum ecosystem going forward.
Justification for the size of the grant: Notional has a proven track record of shipping innovative products and generating traction over a long period of time. Notional has established itself as the leader in fixed rate lending and borrowing on Ethereum and has committed to investing in Arbitrum as our exclusive L2.
We believe that Notional’s track record, our commitment to Arbitrum, and the value that this grant can create for the Arbitrum ecosystem and user base justify the request.
Execution Strategy: ARB incentives will be distributed to liquidity providers by airdrop every two weeks starting November 8th and ending January 31st. Notional will publish a Dune dashboard that tracks ARB incentives earned by address in real-time over each two week period.
At the end of each period the output of this dune dashboard will be used to seed an airdrop contract. The Notional core team will deploy the airdrop contract and distribute the total ARB for that period from the funding contract (0xbf778Fc19d0B55575711B6339A3680d07352B221) within 24 hours of the end of the 2-week period.
Here is the indicative split of ARB incentives to liquidity providers by currency over the life of the grant and for each of the seven 2-week periods.
USDC: 120,000 ARB total. 17,143 ARB per two-week period.
DAI: 50,000 ARB. 7,143 ARB per two-week period.
USDT: 50,000 ARB. 7,143 ARB per two-week period.
FRAX: 50,000 ARB. 7,143 ARB per two-week period.
ETH: 120,000 ARB total. 17,143 ARB per two-week period.
wstETH: 50,000 ARB. 7,143 ARB per two-week period.
rETH: 50,000 ARB. 7,143 ARB per two-week period.
wBTC: 10,000 ARB. 1,429 ARB per two-week period.
Grant Timeline: ARB will be distributed linearly and continuously from October 25th 2023 when Notional V3 launches out of Beta to January 31st 2024.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream?: Yes.
Is the protocol native to Arbitrum?: Notional initially deployed on Ethereum in 2021. Notional V1 launched in January 2021 and Notional V2 launched in November 2021. Notional V3 has been deployed on Arbitrum for internal testing since May 2nd 2023 and will go live in closed Beta on September 25th 2023. Notional V3 will then go fully live on Arbitrum on October 25th 2023.
On what other networks is the protocol deployed?: Ethereum.
What date did you deploy on Arbitrum?: May 2nd 2023
Protocol Performance: Notional V2 has been live on Ethereum Mainnet since November 2021. Here are major points that Notional V2 has accomplished on Ethereum Mainnet since launch:
- Executed $770M in total loan volume.
- Currently holds $27M in TVL.
- Established leading position in the fixed rate lending and borrowing category.
- Launched the first leveraged yield strategy product using fixed rate leverage.
- Integrated with leading protocols like Balancer, Curve, Yearn, Spool, Phuture, and Index Coop.
Notional V3 has been deployed on Arbitrum in an internal testing capacity since May 2023. The protocol on Arbitrum currently holds $135K and will go live in closed Beta on September 25th 2023.
Protocol Roadmap: Notional’s roadmap from here is focused on developing new leveraged vault integrations with protocols native to Arbitrum and opening up new leveraged vault strategies. Here is what we expect to accomplish in the coming months:
- Support for more leveraged yield strategies on Balancer and Aura. Specifically, these pools:
- Leveraged yield strategies that allow users to arbitrage fixed interest rates between like-assets on Notional like wstETH/ETH, FRAX/USDC, etc.
- Onboard Arbitrum-native collateral assets including tokens like ARB and GMX.
- Develop a leveraged vault integration with GMX.
- Develop a cross-chain vault that will allow users to arbitrage interest rates on Notional between Ethereum Mainnet and Arbitrum. This will result in moving capital from Ethereum Mainnet to Arbitrum where the yields are higher.
We believe that this roadmap is set to deliver a lot of value to advanced DeFi users, passive DeFi users, and the Arbitrum ecosystem as a whole.
- Dec 2020 - Notional V1 (Open Zeppelin)
- Sep 2021 - Notional V2 (ABDK)
- Oct 2021 - Notional V2 (Code Arena)
- Nov 2021 - Notional V2 Governance (Open Zeppelin)
- Nov 2021 - Notional V2 (Certora)
- Nov 2021 - Notional V2 part 2 (ABDK)
- Mar 2022 - Staked NOTE (Code Arena)
- Mar 2022 - Notional V2.1 (Consensys Diligence)
- Jul 2022 - Wrapped fCash (Code Arena)
- Jul 2022 - Leveraged Vaults (Consensys Diligence)
- Oct 2022 - Leveraged Vaults + Balancer vault strategy (Sherlock)
- Jan 2023 - Balancer vault strategy part 2 (Sherlock)
- Mar 2023 - Convex vault strategy (Sherlock)
- May 2023 - Notional V3 (Sherlock)
Find links to all audit reports on our Github or website.
Is your team prepared to create Dune Dashboards for your incentive program?: Yes. We already have an extensive Dune dashboard to track Notional V3 KPIs on Arbitrum. We could add additional graphs or create a dedicated dashboard to analyze the impact of the incentive program on Notional’s TVL, open debt, user count, and track incentive rates for specific currencies over time.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread?: Yes. We can update the community on a bi-weekly basis regarding the effectiveness of the incentivization program based on on-chain metrics. We regularly provide status reports to the Notional community on a quarterly basis and can meet whatever cadence the Arbitrum community would prefer.
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: Yes.