fCash maturity

So, when you have fCash that has reached maturity, Notional calculates the value of your +ve or -ve fCash denominated in Cash and converts them to +ve or -ve cTokens. The conversion of Cash to cToken takes the exchange rate at the time of maturity into consideration.

For example, if you have 100 fCash worth 100 DAI, Notional will convert it to 1000 cDAI, which also equals 100 DAI (assuming the value of 1 cDAI to be that of 0.1 DAI at the time of maturity)

During this conversion process, the exchange rate between cTokens and underlying Tokens (like DAI) is recorded and used for the entire settlement process of the fCash. This exchange rate is called the Settlement Exchange Rate. It's important to note that this rate stays the same even if some time passes after the fCash has matured.

Lender side settlements

When you borrow money from a lender, you agree to repay the amount borrowed plus interest at a certain time in the future.

Now, as a lender you are holding some positive fCash (which means that you have earned some interest on your borrowed money) at the time of maturity, it will be converted into +cToken.

The value of your fCash in cToken will depend on the exchange rate between cToken and Token. Let's say you have 100 positive fDAI, and the exchange rate between cDAI/DAI is 10:1. At the time of maturity, your account would show +1000 cDAI, which you can withdraw and it would be worth 100 DAI.

Here's how the value of 100 Dec 1 2021 fDAI changes as time passes and the cDAI/DAI exchange rate changes:

If you choose not to withdraw the cDAI, it will continue to earn interest offered by Compound. You can check the cDAI/DAI exchange rate and the DAI value of cDAI to know when it is best to redeem your cDAI. I hope this explanation helps you understand the concept better.

Borrower side settlements

If the borrower has negative fCash (meaning they owe more interest than they've earned) at the time of maturity, it will be converted into -cToken based on the exchange rate between cToken and Token.

As an example, if you are having 100 negative fCash, at the time of maturity your account would show -1000 cDAI assuming the exchange rate between cDAI/DAI is 10:1. Here the -1000 cDAI represents an outstanding debt (obligation) and it would be worth 100 DAI.

If this happens to many borrowers, lenders may not be able to withdraw the DAI they are owed. To solve this problem, Notional V2 allows third parties to force an account with a negative cToken balance to borrow at a penalty rate. The third party acts as a lender and deposits cTokens into the borrower's account to repay their debt.

An offsetting pair of positive and negative fCash assets are placed directly in the portfolios of the borrower and the third person (lender). The newly minted fCash would be based on 3-month fCash market exchange rates plus a penalty rate and would mature based on the 3-month fCash market's upcoming maturity date. This ensures that the borrower repays their debt, and the lender receives their due amount with interest.