Notional Finance lets you lend or borrow crypto assets at fixed rates on Ethereum, via a decentralized protocol — a significant upgrade to the majority of protocols, which are primarily focused on guaranteeing fixed rates to lenders, while borrowers looking for predictable interest rates are left out in the cold.
As Notional prepares for the release of its V2, they’re launching a two-week, $200K audit contest on Code4rena — it opens August 26.
The C4 team asked Teddy Woodward, Notional’s co-founder and CEO, about what Notional’s protocol makes possible, his thoughts on DeFi security… and what Shakespeare performances he loves.
“Lots of people don’t realize that audits are in extremely high demand and so many projects are skipping this step, cutting corners, and ending up with major problems.” — Teddy Woodward, Co-Founder & CEO, Notional Finance
What are you building, and what sets it apart from similar offerings in the space?
Notional is a decentralized protocol enabling fixed-rate lending and borrowing of crypto-assets on Ethereum, via on-chain liquidity pools. Users can lend or borrow a broad set of Ethereum-based assets at fixed rates of interest for up to one year — and soon, even longer. Fixed-rate lending is important because it gives users the certainty they need to plan for the long-term.
We’re excited about the prospect of bringing more mainstream users like family offices and other institutional investors into DeFi. We built Notional to give everyone, from the casual crypto holder to the crypto hedge fund, the tools and the ability to manage their finances like a professional.
Fixed-rate lending protocols have proliferated recently, but most of those protocols are focused exclusively on lenders and neglect users who want to borrow at fixed rates. Notional is one of only two fixed rate protocols that cater to both lenders and borrowers, and that’s a huge advantage. Serving both sides of the market increases the number of users we can reach and the presence of borrowers on our platform pushes up our interest rates and creates better opportunities for lenders.
With V2, we’ve also introduced the concept of nTokens, which are auto-rolling, passively managed ERC20 tokens that represent LPs’ share of the liquidity pools. Thanks to our Compound integration and liquidity mining program, LPs will earn the base Compound interest rate on top of pool fees and NOTE incentives. Having attractive liquidity incentives is one of the missing ingredients that other fixed rate protocols have left out, and we think it’s just what is needed to make sure borrowers and lenders get great rates with low slippage for trades of just about any size on Notional V2.
“I want to see that you can lend and borrow 100 million dollars in just a few clicks.”
What’s your vision for your project? What are you building towards in the longer view?
We believe that our V2 will help catalyze the next chapter in DeFi’s adoption. The top metric that I’m looking for there is lending and borrowing volume — are people using this protocol and using it in size? I want to see that you can lend and borrow 100 million dollars in just a few clicks — that would fulfill Notional’s promise of being truly revolutionary. Getting there is going to require a lot of liquidity, and the changes that we’ve put into Notional V2 should put us in the position to attract the liquidity that we need, so I feel confident we’ll get there.
We believe that Notional will become core, base level infrastructure for many other products to be built upon — perhaps they won’t realize they are interacting with Notional, but they will be benefiting from our secure and highly-capitalized liquidity pools offering great rates.
“When security is your top priority, you have to be open to getting there by any means necessary.”
What’s the most innovative idea in your protocol?
Notional V2 introduces a lot of innovations, but the core concept that the protocol is built around is fCash. fCash allows us to tokenize and trade payments that occur at specific dates in the future. For example, December 1st 2021 USDC is an fCash token that can be redeemed for one USDC on December 1st 2021. This fCash token represents USDC at a specific date in the future. We enable users to lend and borrow at fixed rates by allowing them to trade USDC today for USDC in the future — the exchange rate at which a user makes that trade implies the fixed interest rate they receive over that period of time.
It takes courage to undergo a public audit by a swarm of anonymous security researchers. It also says a lot about how much you prioritize security. What advice would you give to those on the fence?
When security is your top priority, you have to be open to getting there by any means necessary. Lots of people don’t realize that audits are in extremely high demand and so many projects are skipping this step, cutting corners, and ending up with major problems. We aren’t willing to cut corners on security and I would advise other projects to do the same. Getting a group of highly talented security professionals to put eyes on our code base might be nerve-wracking — but I’d rather a security researcher find a bug now than a hacker after we launch!
Ultimately, if your aim is to fundamentally change the financial system and build something which will last for the long term, you have to prioritize security over shipping something out as fast as you can. To gain users’ trust, especially among institutional and mainstream investors who are worried about DeFi’s security risks, undertaking a bug bounty prize contest like Code Arena is one more way that you can be as sure as possible that your code is in tip-top shape. We also see it as a great opportunity to engage with the wider community and start having conversations about the possibilities Notional offers.
“As long as there are people willing to ape into a project[…] without doing their due diligence on the protocol, we are going to continue to see exploits, hacks and rug pulls from nefarious, lazy or unscrupulous project developers.”
Security has become an increasingly vital topic in DeFi. How do you think the ecosystem needs to evolve in order to rise to the challenge?
Ultimately, the users need to demand more from the projects they are putting their money into. As long as there are people willing to ape into a project because of the possibility of 2000% farming yields without doing their due diligence on the protocol, we are going to continue to see exploits, hacks and rug pulls from nefarious, lazy or unscrupulous project developers. It’s a shame because it casts the whole space in a bad light, and there is no shortage of naysayers waiting to pounce on any negative headline that comes out of crypto or DeFi.
On the other hand, many well-meaning projects don’t get audited because the audits are too expensive, the wait list is too long, or the audit firms available are of substandard quality. Eventually the supply of talented auditors will grow to meet the demand, but in the meantime, doing an audit contest with Code4rena is a great tool for projects eager to ship code.
It’s inspiring to see stories of projects’ users crowdsourcing the funds for a bounty pool on Code4rena — if you have a dedicated user base, just about anything is possible.
What gets you most excited about DeFi?
I like the self-sovereignty and fairness that DeFi offers. It is empowering to be in full control of your money and have access to the same opportunities that were traditionally reserved for the wealthy and well-connected.
What DeFi project name do you wish you’d thought of first?
Notional! For a long time we were calling ourselves Swapnet. Switching the name to Notional was a good decision, but it was a huge pain — I don’t think I’ll ever be able to stop checking my Swapnet email.
What do you geek out about, beyond DeFi?
I love Shakespeare. I can watch Shakespeare’s histories over and over — every production brings out something different in the work. I enjoy comparing different versions of the same play and thinking about how one actor decided to portray the character vs another.
I get really excited when I see an actor I like has decided to take on a famous role, and I’ll book the show months in advance.
One of the worst things about this pandemic for me is that I haven’t been able to get my fix of theater. ☹️
Got any favourite Shakespeare productions to recommend? I know film isn’t the same as theater…
The PBS Production of Macbeth with Patrick Stewart is great — and Kate Fleetwood makes a great Lady Macbeth.
I also loved Ralph Fiennes as Coriolanus.
Learn more about Notional Finance:
- Website: notional.finance
- Twitter: @NotionalFinance
Notional’s $150K USDC + $50k NOTE security audit contest kicks off August 26, 2021, and runs for two weeks. Details at code4rena.com.
The Ones in the Arena spotlights emerging and established DeFi projects and their founders, with an eye to celebrating and learning from them. The series’ name is inspired in part by Teddy Roosevelt’s famous quote, which has a central place in Code4rena’s philosophy.
