Lenders trade (fCash)

This is for you, anon Lender

This is literally the only 🧵 you would ever need to understand everything about lending on Notional and how you can strategize your position to get maximum.

PART 1

(Planning tool included)

A 🧵 on how to use it efficiently

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To interact as a Lender or Borrower with Notional, you need to choose a specific liquidity pool that is subjected to a maturity date.

So, as a Lender, you need to swap your capital (ETH) for fCash (fETH) in a pool subjected to the maturity of your choice.

A reference on how notional AMM liquidity pool trades works:

[link to AMM basics]

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The Catch is that the fCash that you would get from swapping Cash will be greater in quantity than the capital you swap. As time passes, the value of fCash approaches the asset you supplied.

At the time of exit, when you swap fCash for Cash you are likely to have more value than you invested.

Here is how fCash value changes with time:

[link to fCash valuation]

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Assume you want to lend 100 DAI in a pool that matures in 11 months when the rate is at 5% and you wish to hold the position for 6 Months.

11 months = almost 335 days

6 months = almost 183 days

After putting all the parameters in the sheet, here is what we have:

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Let me break it down for you:

🔹 You swap your 100 DAI for fDAI. For valuing the fDAI the interest rate taken would be 5%-0.3% i.e. 4.7%. Note that the liquidity fee always works opposite to your trades.

🔹 The fDAI received is 104.41. This suggests that if you hold your position till maturity you are likely to get 104.41 DAI.

Tool: https://docs.google.com/spreadsheets/d/1H6px7nC6FUol3X1Xewj525VlRZmRgfBvvFSOn7XX2XE/edit?usp=sharing

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Assuming you would only hold your position for 6 Months (183 days) and the rates at that time are still 5%.

🔹 You would be swapping 104.41 fDAI for DAI.

🔹 At the time of exiting, you would get 102.13 DAI based on the fDAI value at the time of exit (defined by the interest rate and TimeToMaturity at exit).

🔹 This is a net 4.20% APY on your investments

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BUT

What happens if the interest rate has changed at the time of exit?

and what if you want to exit very early?

Can it be profitable?

We don't want you to get high on your coffee so we will be going to cover these in the next upcoming thread. You can play with the tool meanwhile you can figure it out on your own.

https://docs.google.com/spreadsheets/d/1H6px7nC6FUol3X1Xewj525VlRZmRgfBvvFSOn7XX2XE/edit?usp=sharing

Stay tuned!

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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?

🔹 (Of course) fCash valuation tool for Lenders - Advanced 🚀

🔹 Resources for borrowers - inside out