Liquidity pool

Overview

When you make a lending trade, you'll exchange your capital with a counterparty and in return, you'll receive a fixed amount of that same currency at a specific point in the future, along with the agreed-upon interest rate.

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Similar to a bond issuer, a borrower can mint positive fCash and negative fCash tokens based on the supplied collateral, collateral ratio, and the amount that the borrower wishes to borrow. The newly minted positive fCash token is swapped for cTokens.

fCash Use-case

The liquidity pool acts as a counterparty for all the borrowing and lending trades. The liquidity pool holds an asset token (cToken) along with positive fCash tokens. Each liquidity pool is subjected to a maturity associated with the fCash tokens that it is holding.

The proportion of cTokens and fCash tokens in the liquidity pool defines the exchange rate between them thus the interest rate for the underlying borrowing or lending trade.

Liquidity pool participants

Three user types interact with Notional liquidity pools: lenders, borrowers, and liquidity providers. Lenders deposit cDai into the pool and receive fDai (a promise to receive a fixed amount of Dai at a future date). Borrowers take cDai from the pool and deposit fDai (a promise to pay a fixed amount of Dai at a future date). The liquidity provider adds cDai and Dec 1 2021 fDai into the pool which can be lent or borrowed by either party.