AMM Overview and Trades

What!?

A Lending and Borrowing service based on an AMM?

🧐📊

Notional Finance is incorporating an AMM to facilitate fixed rates for your Lending and Borrowing needs.

A 🧵 on how the Cash / fCash liquidity pool creates the magic of fixed-rate products.

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fCash are +ve and -ve and they set off each other.

⚖️⚖️⚖️

+ve fCash represents a claim on principal + interest and -ve fCash represents an obligation to pay back the principal + interest.

Check the following 🧵 for a quick refresher on fCash.

[Link to the thread - fCash overview]

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Here is what the Liquidity pool 🌊 looks like:

Cash/fCash corresponding to a specific maturity date (3M, 6M, or 1Y).

Notional uses cTokens, a simply yield-bearing derivative token that represents your Cash.

If you want some yield on your idle capital 💰, you may swap some Cash for +ve fCash (a claim of principal + interest in the future) in the liquidity pool to get into a lending position.

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If you want to make degen plays, you may borrow Cash by minting a pair of fCash (+ve & -ve) based on the interest rates, time left to maturity, and the collateral provided.

The +ve fCash tokens are swapped for Cash.

The -ve fCash represents an obligation to repay the principal + interest; the user needs to set off their obligations with +ve fCash in order for them to exit their borrowing position.

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🤽🏻‍♂️

Liquidity providers play an important role in helping to make swapping between Cash and fCash possible by ensuring there's enough liquidity available.

These providers actually get rewarded for their efforts with trading fees and the native NOTE token! 💸

Whenever a trader trades in Cash/fCash pool, a 0.3% fee is charged, a share of which works as an incentive for liquidity providers.

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Mechanisms are designed in such a way that all the fCash are resolved in Cash at the time of Maturity.

Lenders get what they owe 😎, a borrower can plan their degen strategies with fixed rates 🤑, and liquidity providers are handsomely incentivized to ensure adequate liquidity 🤽🏻‍♂️.

win^3

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[OPTIONAL]

We are bringing a series of threads to better understand a large and complex codebase (~12,000+ lines of Solidity!) most simplistically.

👀 What's upcoming?

🔹 fCash Valuation Basics

🔹 fCash valuation tool for experimentation