Risk Harbor

Integration Proposal: Notional Finance

I was recently involved in a UX session for Notional Finance, and the subject of simplified, integrated insurance options came up which could be a good fit for Risk Harbor.

Notional Finance is a protocol for lending and borrowing at fixed rates using dated maturities, currently with USDC/DAI markets totaling a bit under $10m. While TVL is still small relative to more established protocols like Barnbridge and Harvest, most analysts agree fixed-rate lending/borrowing has the potential to become one of DeFi’s largest primitives, and Notional is already live with a working product and a v2 upgrade pending for September. It’s fair to say, especially given the current size of DeFi lending markets and rapid YoY growth of the space, that 9 to 10 figures in liquidity is readily achievable as a lending/borrowing product begins to achieve significant traction.

A solution as proposed in RHIP 1 could fit perfectly in this case as Notional checks both boxes:

  • Target users want to deposit into simple, popular protocols that provide yields between 2-15%
  • Target users want to deposit simple assets like USDC, DAI, ETH and expect their withdrawals to be on those assets.

Given current pricing for protection via Nexus Mutual for protocols like Compound and AAVE hovering around 2.5%, it’s fair to say that most Notional lenders would be priced out given current market rates (lending rates for DAI + USDC are currently <2.5% for both platforms) and assuming Notional has a similar risk profile. Risk Harbor’s competitively priced rates should be very attractive to what is, essentially, a captive market. Considering the large amounts of capital and long durations of fixed rate lending/borrowing, a fair-priced, reliable algorithmic insurance product could prove extremely useful and popular as Notional grows.

There’s perhaps a secondary value as well in this integration (I’d include the pending possible Element integration here).

As a new cohort of DeFi protocols enters the market (so-called “DeFi 2.0” cenetered around fixed rates, structured products, rate swaps, lending aggregation, and derivatives) I’d argue they bring in a new class of users + builders, and fresh engagement, all with an eye towards rapid expansion of their user base. While they have a lower TVL (and less value to insure) relative to more mature peers, partnering with these protocols perhaps brings a more sticky and engaged set of early users + partners which are invaluable in creating a base for powerful long term growth. This is a great opportunity to work with another team who is early in the growth stage, and integrations like this can be a strongly aligned win-and-help-win opportunity for both RH and Notional.

This is my first proposal, so apologies if it’s skint on any necessary information. Would be great to have feedback from anyone on this. Raouf mentioned they would do some technical DD, so hopefully some news on that side when it’s ready.