fCash position for nToken holders
Last updated
Last updated
The impact on a liquidity provider's portfolio due to the trades is very similar to that of V1.
In V1, LPs were only exposed to a single pool and any asset imbalance would be limited to that particular pool. But as V2 diversifies the liquidity among different available pools for the deposited asset, the imbalance in the assets (Cash & fCash) would come from all the pools that were used to provide liquidity.
It is possible that all the pools that are used to provide liquidity result in a net fCash position at the time of exit.
This section is the same as Liquidity provider's portfolio but you can assume that the DAI supplied in the example below is a portion that was distributed among 3 pools (3 Months, 6 Months & 1 Year). Assume the 15% allocation going towards 1 Year DAI pool is 100 DAI.
Positive fCash is a coupon to claim the principal + interest and it is usually held by a lender (one who invests in the bonds).
Negative fCash is an obligation to pay back to the lender (investor). It is usually held by a borrower.
Context: What & Why fCash?
With the above context, it is clear that if a user's portfolio has higher -ve fCash (obligation) than +ve fCash (claim on Cash), the user is in a net borrowing position. If the inequality is reversed, it would be a net lending position.
Liquidity tokens represent a claim on Cash and +ve fCash in the liquidity pool based on the current ratio. So if the fCash proportion changes from 0.49, the user would no longer get the 100 DAI & 96.078 +ve fCash but receive different quantities.
Now if the fCash ratio in the pool is lower than 0.49, when the user redeems their tokens they will receive greater than 100 DAI (initial deposit) and less than 96.078 +ve fCash (initial deposit). This would create a net borrowing position (obligation) in a user's portfolio because -ve fCash > +ve fCash in their portfolio.
Similarly, with the same logic, if the fCash ratio in the pool is greater than 0.49, it would create a net lending position in a user's portfolio because -ve fCash > +ve fCash in their portfolio.
Liquidity providers have an option (default) to swap their net fCash position into Cash to facilitate simplified withdrawals. This swap is subjected to a liquidity fee similar to that paid by Borrowers and Lenders.