Leveraged Vaults

Leveraged vaults allow whitelisted smart contracts to borrow from Notional at fixed rates in order to pursue a strictly defined yield strategy.

Introduction

Notional Leveraged Vaults is a framework within the Notional protocol where loans are extended to borrowers to pursue strictly defined yield strategies. In this framework, the assets in the vaults are used as collateral for the debt - this allows accounts to borrow multiples of their initial collateral deposit.

While many protocols provide yield strategy vaults, Notional has the distinct advantage of being able to offer leveraged exposure to strategy returns via fixed rate borrowing. Fixed rate borrowing significantly reduces the user’s risk of liquidation or loss, allowing them to utilize higher leverage ratios and achieve greater capital efficiency.

A set of video walkthroughs can be viewed on YouTube.

Technical Architecture

Each leveraged vault position exists in an isolated collateral context from all other vault positions. It is also isolated from an account's normal Notional lending and borrowing activity.

Vault Controller

A set of two contracts, VaultAction and VaultAccountAction deployed behind the Notional V2 router with full access to Notional V2 storage. These contracts are responsible for:

• Whitelisting and configuring individual strategy vault access to Notional

• Tracking total assets and debts for each strategy vault and users across maturities.

• Authentication and authorization of borrowing, withdrawals, liquidation, and settlement.

Strategies

Each strategy is a bespoke implementation of a yield strategy. Each strategy is responsible for:

• Implementation of entering and exiting the yield strategy

• Claiming and compounding rewards from the yield strategy

• Unwinding the yield strategy upon maturity

• Managing vault level risks for the strategy (i.e. emergency withdrawals)

• Oracle manipulation resistant valuation of the strategy token

Strategy Vault

An individual strategy vault is a particular deployed instance of a strategy. For example, the Cross Currency fCash strategy may be deployed as two strategy vaults: a DAI to USDC fCash strategy and a DAI to FRAX fCash strategy. Both vaults would implement the same strategy, but for different currency pairs.