How Does Notional Finance Work?
A fixed-rate lending protocol that lets you lock in interest rates for 3, 6, or 12 months, bringing traditional bond-like products to DeFi. It manages $50M in deposits and raised $10M. Its B grade reflects a clean track record and well-designed interest rate mechanics, offset by low liquidity that makes the rate-setting market vulnerable to manipulation.
TVL
$3M
Sector
Lending
Risk Grade
B-
Value Grade
C+
Core Mechanisms
Lending/Fixed-Rate
NovelFixed-rate lending via fCash tokens with set maturity dates
Users lend at fixed rates by purchasing fCash tokens representing future cash flows at specific maturities (3-month, 6-month, 1-year). Brings tradFi fixed-income primitives to DeFi.
AMM/Fixed-Rate-Discovery
NovelCustom AMM for interest rate price discovery between fixed and variable rates
Proprietary AMM curve optimized for interest rate trading rather than token swaps. Enables market-driven fixed rate discovery through liquidity provision.
Token/fCash
NovelfCash tokenized fixed-rate claim with defined maturity
fCash tokens represent a claim to a fixed amount of currency at a future date. Can be traded before maturity, creating a secondary market for fixed-rate positions.
Lending/Leveraged-Vault
Leveraged yield vaults borrowing at fixed rates to farm variable yields
V3 introduced leveraged vaults that borrow at fixed rates from Notional and deploy into yield strategies, profiting from the spread between fixed borrow cost and variable yield.
Liquidation/Collateral
Collateral-based liquidation for borrowers and leveraged vault positions
Undercollateralized positions are liquidated by keepers who repay debt and receive collateral at a discount. Critical for maintaining protocol solvency.
Governance/NOTE
NOTE token governance with treasury management
NOTE token governs protocol parameters and manages the treasury. Protocol paid $1M bug bounty for a critical vulnerability, demonstrating commitment to security.
Maturity/Rollover
Quarterly maturity settlement and position rollover mechanism
Fixed-rate positions mature quarterly. Users must actively roll over positions or withdraw, creating periodic liquidity concentration at maturity dates.
How the Pieces Interact
If variable rates spike significantly above locked fixed rates, lenders face opportunity cost while borrowers benefit; in reverse, borrowers may default rather than repay above-market fixed rates.
Low liquidity in the interest rate AMM allows concentrated positions to manipulate fixed rates, potentially creating artificial spreads that benefit manipulators at the expense of passive LPs.
Leveraged vaults that borrow at fixed rates to farm variable yields face solvency risk if variable yields compress below fixed borrow costs for extended periods.
Quarterly maturity dates create predictable liquidity events where large positions settle simultaneously, potentially causing slippage and rate dislocations.
fCash tokens used as collateral may be mispriced if the secondary market is illiquid, leading to under- or over-collateralization of dependent positions.
What Could Go Wrong
- Fixed-rate fCash tokens create interest rate mismatch risk if variable rates diverge significantly
- AMM-based fixed rate discovery can be manipulated through concentrated liquidity provision
- Maturity rollover creates periodic liquidity gaps as fixed-term positions expire simultaneously
Interest Rate AMM Manipulation Cascade
TailTrigger: Interest rate AMM liquidity drops below $5M with a single LP controlling >60% of depth, enabling concentrated position manipulation over 2+ weeks
- 1.Low liquidity allows a large LP to manipulate fixed rate discovery by concentrating positions at artificial rates — Fixed rates deviate 200+ bps from fair market value
- 2.Borrowers lock in artificially low fixed rates while lenders receive suppressed yields — Protocol TVL begins to decline as lenders seek better rates elsewhere
- 3.Leveraged vaults borrowing at manipulated fixed rates take on excessive risk at mispriced spreads — Variable yield compression below manipulated fixed borrow costs creates vault insolvency risk
- 4.Vault liquidations cascade as spreads invert — Liquidation bot competition on undercollateralized vaults causes price impact on collateral
- 5.fCash secondary market illiquidity prevents fair valuation of collateral positions — Remaining positions are mispriced, leading to under-collateralization across dependent positions
Risk Profile at a Glance
Overall: B- (28/100)
Lower score = safer