User Journeys

Describes the various user journeys for leveraged vaults.

Enter Vault

An account is only permitted to borrow from a single maturity to enter a vault at any given time. The following things must occur:

  • If the account has a matured position in the vault, it must be settled to cash and strategy tokens.

  • An account will borrow some amount of cash to enter the vault and pay a fee to the nToken and the protocol reserve (in addition to existing trading fees).

  • All cash (including the cash from a settled maturity) will be deposited to the vault and the vault will enter a yield strategy position for the account.

  • If an account has strategy tokens from a previous maturity, those strategy tokens will be migrated to the new maturity. (See: vault shares for additional considerations here)

  • In order to complete this transaction the account must:

    • Must maintain a minimum borrowing balance to ensure profitable liquidations

    • Cannot borrow above a vault defined maximum borrow capacity

    • Must be above a defined collateral ratio for the vault

Exit Vault

Generally speaking, an account can exit their vault position at any time. There are two types of vault exits, pre-maturity and post-maturity. In a pre-maturity exit an account will redeem some amount of vault shares for cash, repay their debts and withdraw their profits. If a vault still has an active borrowing position they must:

  • Must maintain a minimum borrowing balance to ensure profitable liquidations

  • Must be above a defined collateral ratio for the vault

During a post-maturity exit, the vault will redeem all strategy tokens and cash they have claim on and their position will be cleared. This can only happen once the entire vault has been settled. Vaults will be designed such that settlement must complete within 24 hours post maturity.

Roll Vault Position

Accounts may want to continue to borrow at fixed rates to fund their position so some vaults may offer the option to “roll” their borrowing into a subsequent maturity without having to exit their trading strategy (and incur trading and/or slippage fees).

During this action, an account will borrow funds from a longer dated maturity to repay debt in their current maturity. Any excess funds will be used to generate more strategy tokens. Any assets held in the previous maturity will be migrated to the new maturity.

Vaults must be whitelisted into allowing vault positions to be rolled. For vaults to take advantage of this functionality, they must ensure that strategy tokens are fungible between maturities.

Deleverage Account

The value of strategy tokens may fall, causing the collateral ratio on an account to go below the minimum defined collateral ratio. In this case, the account will be deleveraged (i.e. liquidated).

Any other assets an account holds in their primary Notional account (i.e. non-leveraged vault lending, borrowing and nTokens) are not considered in the context of a leveraged vault. Every leveraged vault account exists in a completely isolated collateral context from all other assets (including other leveraged vault positions held by the same account).

  • A liquidator will purchase strategy tokens from the account directly using the borrowed currency.

    • Liquidators may opt to have the vault shares purchased placed in their own vault account or redeemed for cash. It is important to note that some strategies may not be freely redeemable for the borrowed asset until some unlock period.

    • A liquidator will supply "asset cash" (i.e. money market funds like cDAI or cUSDC) accepted by Notional and will receive (if redeeming) underlying tokens (i.e. DAI or USDC) in return. The profits received will always be in the primary borrowed currency for the vault.

  • An account can either be liquidated up to a defined maximum deleveraging collateral ratio or completely liquidated down to zero debt (in the case when the liquidation would cause the account to fall below the minimum account borrow size).

  • An account’s debt will be repaid at 0% interest. There are a few considerations for this design decision:

    • Allowing the liquidator to lend on behalf of the account would lead to a flash loan vulnerability.

    • Withholding asset cash against an fCash debt (similar to how a liquidation works outside of leveraged vaults in Notional) would cause strange edge cases as the entire vault is settled.

    • The decision to force the account to lend at 0% interest would have the difference in interest accrue to the protocol as a “fee” for liquidation.

Settle Vault

As a vault’s borrow position approaches maturity, the vault needs to repay its debt. Debts can be repaid in three ways:

  • Accounts can exit their positions by redeeming strategy tokens and repaying their debts.

  • Accounts can roll their positions into future maturities by borrowing to repay their current debts.

  • A strategy vault will redeem its own strategy tokens to raise asset cash which will be held in escrow as repayment for the maturing debts of all its accounts. This can be considered a “pooled settlement”.

Each vault must build a settlement process to unwind its position to repay outstanding debts as it gets closer to maturity. All vaults must have completed their settlement process within 24 hours post maturity in order to ensure that lenders have sufficient cash to withdraw.


Vaults can experience insolvencies in two ways.

One is an insolvency of the entire vault, meaning that there are no more strategy tokens left to redeem and insufficient cash to repay debts at maturity. This can occur due to a failure to deleverage individual accounts, insufficient liquidity to trade out of strategy tokens resulting in extreme slippage, or a smart contract hack or insolvency in the yield generating protocol. In this case, the protocol reserve will be drawn down first to attempt to repay debts. If this is still insufficient, then governance must take over to manually resolve the insolvency.

The second is where the vault itself has sufficient cash to repay its debts, but an individual account has insufficient funds to repay its own debt. This will occur due to a failure to deleverage an individual account. The effect of this will be that as accounts settle their positions to withdraw their profits, one or more accounts may be unable to withdraw due to the shortfall in the insolvent account(s) (the insolvent account(s) will not be able to withdraw any profits). At this point, the vault controller will attempt to draw down the reserve to make solvent accounts whole. If that is insufficient then governance must also take over to manually resolve the insolvency.

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