What Is Notional Finance (NOTE)?
Notional Finance is a protocol on Ethereum that facilitates fixed-rate, fixed-term crypto asset lending and borrowing through a novel financial instrument called fCash. Exploring the documentation found here will give you the full technical background of how Notional works. For a higher-level explanation, please read this blog post. Notional V2 is governed by NOTE token holders. The Notional Team will provide analysis and parameter recommendations for a short period of time following the launch of the protocol. Fixed-rate financing is how financial markets operate. Fixed interest rates provide certainty and minimize risk for market participants, and this is why the majority of U.S. debt is issued using fixed rates.
Notional Finance brings fixed interest rates to the decentralized financial system on Ethereum and gives crypto users the same access to stable financing.As the protocol becomes increasingly decentralized, the Notional Team will step back from protocol governance. Notional was developed and launched in early 2020 by a team of stakeholders with expertise in technology, trading, security, and design. fCash offers a simple and reliable mechanism for Notional users to commit to transfers of value at specific points in the future. Trading fCash allows users to efficiently move value back and forth through time. This flexibility opens a new dimension in the financial design space on Ethereum.
Notional Finance Storage Key Points
|Coin Name||Notional Finance|
|Circulating Supply||1,780,000.00 NOTE|
|Source Code||Click Here To View Source Code|
|Explorers||Click Here To View Explorers|
|Twitter Page||Click Here To Visit Twitter Group|
|Whitepaper||Click Here To View|
|Official Project Website||Click Here To Visit Project Website|
I want to borrow, but what happens if the price of my collateral changes?
When the price of your collateral changes, your collateralize ratio changes. Notional Finance The minimum collateralize ratio that you need to maintain will vary depending on the asset that you’re borrowing and the collateral type you’re using. For example, the minimum collateralize ratio for a USDC loan against ETH is 145%. If your collateralize ratio falls below the minimum 145%, you become eligible for liquidation.
During liquidation, a liquidator purchases a portion of an account’s collateral at a discount to the on-chain oracle price and repays some of the liquidated account’s debt. The liquidator can purchase at least 40% of the account’s collateral, even if the account is only slightly under collateralized. Here’s an example:
- A borrower deposits 1 ETH as collateral with a ETH/USDC exchange rate of 4,000.
- The borrower then borrows 2,000 USDC. Their collateralization ratio is 200% because the value of their collateral is twice the value of their debt. Their liquidation price is 2,900 because at that price their collateral will be worth 145% of their debt.
- The ETH/USDC exchange rate falls to 2,800. Their collateralization ratio is now 140% and they are eligible for liquidation.
- A liquidator purchases 40% of borrower’s ETH at an 8% discount to the on-chain oracle price and places USDC in their account.
Is there a repayment penalty for exiting my loan early?
You can exit your loan at any time without penalty. When you repay your debt, you pay back your principal and any interest that you have accrued to that point. Additionally, you close out the remainder of your loan at the prevailing interest rate. Changes in the prevailing interest rate can affect how much money you make if you choose to exit your position early. You can think about closing out a borrow as executing an offsetting lend.
For example, Notional Finance you borrow 100,000 DAI for six months at 4% and then close out three months later at the now prevailing interest rate of 8%, you will have accrued 1,000 DAI in interest over those first three months. But you will also make money on the remaining three months of your loan because you will offset your 4% borrow with an 8% lend. By closing out early in this scenario, you earn the 4% interest rate differential on your remaining three months and it offsets the interest that you paid in the first three months!
Does lending and borrowing happen in one transaction?
Notional Finance most scenarios, yes. Notional has designed the protocol to minimize user friction as much as possible. You can lend, borrow, provide liquidity, withdraw liquidity or cash into your wallet, repay debts, withdraw loans, or roll assets from one maturity to another, all within a single transaction. Immediately upon maturity of your loan, you will stop earning the fixed rate, and instead switch to the baseline Compound variable interest rate (assets are automatically wrapped on Notional as cTokens).
What happens if I don’t pay back my debt by maturity?
In Notional V2, if you don’t repay the debt you owe to the protocol at maturity, you will be eligible to be forcibly auto-rolled by a third party at a penalty rate. Notional Finance penalty rate is currently set at 250 basis points, or 2.5%. For example, if you were borrowing at a 6% rate, your new rate will be 8.5% until you pay back your debt, which you are free to do at any time.
You can roll your debt to a future maturity at the prevailing interest rate for that maturity at any time. This means that you don’t need to settle your debts if you do not choose to do so. Enforcing the repayment of debt at maturity allows Notional to ensure lenders that they will be able to redeem their fCash for the underlying currency that they are entitled to.