According to Blockworks, Notional Finance has launched its third iteration, v3, on the Arbitrum layer-2 network, expanding its fixed-rate borrowing and lending protocol. The new version, which was publicly released on Monday after a month of closed beta testing, goes beyond simple bitcoin, ether, and stablecoin borrowing and lending to focus on strategies that leverage yield. An initial suite of leveraged vaults on Arbitrum allows users to borrow significantly against their initial capital, increasing their potential yield if returns surpass borrowing costs while also reducing liquidation risk.

These vaults are designed for advanced DeFi users who are familiar with concepts like leverage looping and want to optimize their yield, according to Notional's co-founder and CEO, Teddy Woodward. He revealed that the biggest use case for Notional is leverage, whether for speculation or yield-generation. Notional strategies can be protocol-specific or involve placing capital in external protocols, such as Balancer. However, users must be aware of the risks associated with these leveraged positions, including smart contract risk, the possibility of negative returns when yields are less than borrowing costs, price volatility in borrowing or lending, and the risk of liquidation if collateral ratios decline sharply.

Notional's team chose Arbitrum due to its largest total value locked (TVL) among layer-2 networks and its DeFi-focused community. Woodward remains skeptical of cross-chain interoperability promises and believes that cultural differences between layer-2 communities will continue. The role of Notional's governance token, NOTE, remains unchanged in v3, but it may evolve in the future. Currently, the token can be staked in an 80/20 NOTE/ETH Balancer pool while maintaining governance rights, and the protocol directs some of the fees generated towards staked NOTE holders.