Notional will offer three leveraged vaults, which are slated to go live in October. The leveraged vaults will allow Notional’s protocol to generate more revenue from transaction fees and reduce its dependence on liquidity incentives, with users gaining access to higher interest rates as borrowing demand increases, Notional co-founder Teddy Woodward told CoinDesk.
“Leveraged vaults are a big step forward to increasing capital efficiency for DeFi users and for the DeFi space as a whole,” Woodward said.
Leveraged vaults are a form of crypto lending and borrowing via on-chain liquidity pools that allow users to borrow cryptocurrencies at a fixed rate. That crypto is then deposited into a whitelisted smart contract designed to execute a specific yield strategy.
The amount of currency the user puts up determines the amount of currency that the user can borrow from the protocol, with Notional’s three leveraged vault options allowing users to trade up to 10 or 20 times their initial capital. The minimum amount of capital a user can put up hasn't been set yet, but it will “vary depending on the vault,” Woodward said.
By using lending vaults, a user who puts up 100,000 USDC could net 36% annual percentage yield (APY) on his initial investment over a three-month term, according to the blog.
But with greater potential for reward also comes greater potential risks.
“The more leverage the user takes on, the greater their potential upside and downside,” the blog read.
Notional’s leveraged vault launch comes as the lender continues to increase its DeFi presence. Last fall, the lending protocol launched its V2 upgrade following a $10 million Series A funding round led by Pantera Capital. Notional launched in beta on the Ethereum blockchain in October 2020 after 10 months in stealth mode.
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