fCash maturity

This section is the same as fCash maturity

At the time of fCash maturity, Notional figures out how many cTokens (like cDAI) are equal to the amount of the fCash asset in the currency it's based on (like DAI). They then convert the fCash into that amount of cTokens (e.g. 100 fCash getting converted to 1000 cDAI which is worth 100 DAI).

When this happens, the exchange rate between cTokens and regular Tokens (like DAI) is recorded and used for the entire settlement process of the fCash. This exchange rate is called the Settlement Exchange Rate and it stays the same even if time passes after the fCash has matured.

Lender side settlements

When a lender is holding +ve fCash at the time of maturity, it is converted into +cToken based on the exchange rate between cToken and Token.

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

If you are having 100 positive 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 can be realized by withdrawing and it would be worth 100 DAI. If you don't withdraw the cDAI it would keep accruing the interest offered by Compound (check the cDAI/DAI exchange rate and DAI value of cDAI to redeem in the above image).

Borrower side settlements

Similar to that of the lender's side, when a borrower is holding -ve fCash at the time of maturity, it is 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 en masse, lenders will be unable to withdraw the DAI they are owed. Notional V2 solves this problem by allowing third parties to force an account with a negative cToken balance to borrow at a penalty rate.

The third party would act as a lender and would deposit cTokens into the -cToken holding portfolio (borrower) 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 + penalty rate and would mature based on the 3-month fCash market's upcoming maturity date.