Summary

We propose to modify Notional’s external lending logic to direct interest earned on unutilized supply funds to the protocol itself instead of variable rate lenders on Notional.

This will make Notional significantly more profitable without impacting the attractiveness of lending on the protocol due to the protocol’s ability to generate yield for lenders via borrowing.

Motivation

We believe this is the best course of action for the following reasons:

It makes Notional significantly more profitable. Increased gross revenues and margins will help Notional grow and generate value. As of now, the changes we suggest would increase Notional V3’s current revenue rate by 84%.

It improves UX for users. Returning yield to lenders makes variable rate lending and borrowing on Notional very complicated and it becomes difficult to judge what variable rates could or will be in the future. This change makes variable rate lending and borrowing on Notional simple.

It is easy to implement. The code changes required are minor and don’t touch the core protocol.

Implementation

The code necessary to implement this change has already been written. Upon approval of this proposal, the code will be tested, audited, and deployed. Once the code has been deployed, Notional would phase in the change over time starting with one or two currencies and eventually expanding to all eligible currencies.

We would expect the time from approval of the proposal to full implementation would be roughly 6-8 weeks.