Vault Concepts

Vault Shares: Each maturity (“vault state”) within a strategy vault can be considered a two token “pool”. One token is the strategy token which represents an account’s share of the yield generated by the strategy. The other token is “asset cash” which is held as repayment for debts as the vault reaches maturity. Accounts’ positions in the strategy vaults are measured in vault shares rather than strategy tokens to ensure that they are able to fully withdraw their position at any time. If a vault state has any asset cash, accounts will be prevented from entering. It is assumed that a strategy vault will only ever hold asset cash during an emergency stop out or during settlement, in both cases accounts should not be allowed to enter.

Vault Authentication: Some strategies may require additional business logic prior to allowing accounts to enter vaults, governance can enable methods where the leveraged vault is the only address that can call the Vault Controller.

Secondary Borrow Currency: Some strategies may require borrowing in one or more secondary currencies (the Balancer 2 Token Weighted Pool) is an example of this. The Notional Vault Controller will manage accounting for secondary borrowed currencies for vault. Secondary borrowed currencies are accounted for using the concept of “account debt shares”. During settlement, the strategy vault may pay down the total borrowed secondary currency and therefore individual accounts only need to repay a partial amount of their full secondary borrow amount. Any profits or losses in an individual vault should be forced into the primary borrowed currency to the maximum extent possible.

Zero Interest Rate Lending: There are a few instances where accounts will lend to repay debts at a zero interest rate. This is implemented by having the account deposit money market tokens (i.e. cTokens or aTokens) and then using the current exchange rate of those tokens to net off fCash directly. Since fCash trades at a discount prior to maturity, this is in effect a 0% interest repayment. Since we also do not credit the account with the “asset cash” they also effectively lose any money market interest that would normally accrue to them prior to maturity (this is how repayments work in Notional outside of strategy vaults).

Maximum Borrow Capacity: Each strategy vault will have a maximum borrow capacity across all of its maturities to limit its risk. This borrow capacity is measured in the notional value of fCash (meaning 3 month fCash is added to 6 month fCash). While two maturities of fCash are normally not fungible with each other, this approximation is sufficient for this purpose.

Max Borrow Market Index: Accounts may borrow at any listed market index to enter a vault. Longer duration markets (i.e. 1 year markets) create “idiosyncratic fCash” which implies that fCash that is between 6 month and 9 months to maturity does not have a corresponding Notional fCash liquidity pool to exit. Vaults that cannot handle this condition should not list a max borrow market index greater than 2.