fCash Overview

Would you like better stability and certainty in your borrowing and lending degeneracy?

Notional Finance offers fixed-rate borrowing and lending services.

But HOW?

A 🧵 on how Notional uses fCash to offer fixed-rate products

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The most common fixed-rate instrument in Tradfi is the bond 📜

Bonds are a promise to pay back a certain amount of money at a certain time, with interest.

Notional has actually pulled off something similar at a smart contract level.

🚀

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When a company issues bonds, they ensure the balance between assets and liabilities.

Selling bonds bring in cash, which is recorded as an asset, and the obligation to pay back the principal amount plus interest, which is recorded as a liability.

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To bring this into context, assume the issuer of the bond is a borrower, and the investor is a lender.

The issuer needs to buy back their issued bonds at a premium (principal + interest) to close the borrowing position. The investor needs to sell the bond to close their position

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Now after the issuance of bonds, the Borrower would end up with an obligation to pay Principal + Interest and the Cash from the bond sale

At the same time, the Lender would have a claim on his Principal + Interest in their portfolio.

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How about an added utility?

🔹 Freedom for a lender to withdraw their Principal + Interest anytime and

🔹 Freedom for a borrower to square off their loans anytime.

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But

🤔 How do we represent and track the borrower's obligation and Lender's claim in a smart contract?

🤔 How do we facilitate the added utility discussed above?

That's where fCash & fCash markets come in.

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fCash is a digital representation of a bond that has both the components i.e. claim on assets and an obligation to repay

And

fCash is what makes fixed-rate lending and borrowing possible.

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fCash is positive and negative.

+ve fCash is an asset, like a coupon that allows you to claim your principal amount plus interest, and is typically held by a lender.

-ve fCash, on the other hand, is an obligation to pay back the lender and is typically held by a borrower.

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Similar to how we moved from peer-peer trading in TradFi to Liquidity pool based market making in DeFi.

Notional also uses an AMM liquidity pool as a counterparty that facilitates lending and borrowing trades.

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With a liquidity pool, at any point in time,

🔹 A lender can swap their +ve fCash for Cash.

🔹 A borrower can repay their loan through the liquidity pool by swapping Cash for +vefCash token such that their portfolio have a net 0 fCash value.

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Tl:Dr

fCash is similar to a digital representation of bonds that allows for easy tracking of obligations and claims.

The AMM liquidity pool facilitates trades, where lenders can swap their fCash for cash, and borrowers can repay their loans through the pool.

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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!) in a most simplistic manner.

👀 What's upcoming?

🔹 AMM Overview and Trades

🔹 fCash Valuation Basics