Settlement

When fCash reaches maturity, it converts to cTokens (we assume a settlement exchange rate of 1:1 for simplicity).

Withdrawing cTokens

An account with a positive cToken balance can withdraw the cTokens at any time provided that withdrawal does not cause the account to become under-collateralized.

Negative cToken Balances

A negative cToken balance represents a debt to the protocol that has matured (we assume a settlement exchange rate of 1:1 for simplicity).

Notional needs accounts to cover the debts that they owe in order for accounts with positive cToken balances to be able to freely withdraw their cTokens. The protocol can enforce accounts to collateralize their negative cToken balances, but it can't force an account to settle their negative cToken balances.

Third Party Settlement

To solve this problem, we allow third party settlers to roll matured debts forward to the nearest maturity. Any third party can lend to an account with a negative cToken balance at a penalty interest rate. This brings the delinquent account's cToken balance to zero while providing an incentive for the third party settler.

Any account with a negative cash balance and positive free collateral is eligible for third party settlement. If they have negative free collateral, they must first be liquidated before they can be settled.

Pulling From Protocol Reserves

In the event that an account has no assets in its portfolio and only a a negative cash balance, Notional's reserve funds will be used to cover the account's obligations to the protocol.