# Product Guides # Lending ## Overview * Lenders on Notional deposit their assets into a pool and earn interest paid by borrowers. * The lending rate is determined by the utilization in the pool. * Lending provides up-only yield and is freely redeemable at no cost at any time. ## Creating a position To lend your assets, follow these steps: 1. Go to the [lending page](https://notional.finance/lend-variable/mainnet). 2. Pick a network.
3. Pick the asset you want to lend. 4. Input the amount you want to lend. 5. Click Continue to Review. 6. Click Submit. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page shows you detailed info about your position. You can see: 1. Your APY. 2. How much you deposited. 3. The current value of your position. 4. Your earnings.
## Managing your position To manage your position, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to manage. 3. Click the manage button.
This gives you two options. You can: 1. Convert your loan into a fixed rate. 2. Convert your loan into providing liquidity.
### Converting to fixed To convert your variable rate loan into a fixed rate loan follow these steps: 1. Select which maturity and rate you want. Your APY will be fixed at the rate shown until the maturity date.
2. Click submit. 3. Review details and click submit again. When you convert your variable lend to a fixed rate, you will pay a fee. You can find the size of this fee on the trade summary.
### Converting to liquidity To convert your variable rate loan into providing liquidity follow these steps: 1. Select the liquidity option on the manage menu. 2. Click submit. 3. Review details and click submit again. You may see a fee or rebate when you provide liquidity. The fee or rebate will show up on the trade summary.
## Withdrawing your assets To withdraw your assets, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to withdraw. 3. Click the withdraw button.
4. Enter the amount you want to withdraw. 5. Click submit. 6. Review details and click submit again. ## Fees Variable rate lending has no fees on entry or exit. The only time you will pay a fee is if you convert a variable rate loan to a fixed rate loan or a liquidity position. ## Interest rates The interest rate you earn depends on the interest rate curve and the utilization of the lending pool. You can see what the interest rate has been in the past and the utilization of the pool using the UI. ### Historical interest rates To see the historical interest rate, go to the transaction page of the asset you want to lend. On this page, you can see where the rate has been each day for the last 90 days by hovering your mouse over the chart:
### Utilization The utilization is the total amount borrowed from the pool / total amount lent to the pool. The more people borrow, the higher the utilization goes. You can see what the lending rate will be at different utilization levels by hovering your mouse over the chart:
# Fixed Rate Lending ## Overview * Fixed rate lenders on Notional deposit their assets to earn guaranteed yield until maturity. * The fixed rate is determined by supply and demand. Fixed rate borrowing pushes rates up and fixed rate lending pushes rates down. * Fixed rate lenders can withdraw before maturity subject to market liquidity. ## Creating a position To lend your assets at a fixed rate, follow these steps: 1. Go to the [fixed rate lending page](https://notional.finance/lend-fixed/mainnet). 2. Pick a network.
3. Pick the asset you want to lend. 4. Input the amount you want to lend and select your maturity.
5. Click Continue to Review. 6. Click Submit. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page shows you detailed info about your position. You can see: 1. Your APY. 2. How much you deposited. 3. The current value of your position. 4. Your earnings.
### Market APY vs. APY at Maturity The UI shows two APYs for a fixed rate loan - a Market APY and an APY at Maturity. * **Market APY:** The current fixed APY offered at this maturity. * **APY at Maturity:** The fixed rate you got when you entered into the position. Changes to the Market APY do not affect the APY at Maturity. If you hold the position to maturity you will get the APY at Maturity no matter what happens to the Market APY before maturity. The Market APY matters if you want to exit your loan before maturity. Changes to the Market APY before maturity will cause your total earnings to fluctuate and change the amount that you can withdraw. ## Managing your position To manage your position, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to manage. 3. Click the manage button.
This gives you three options. You can: 1. Convert your loan into a fixed rate at a different maturity. 2. Convert your loan into a variable rate. 3. Convert your loan into providing liquidity.
### Converting to a different fixed rate To convert your fixed rate loan to a different fixed rate: 1. Decide on the new maturity and new fixed rate.
2. Click submit. 3. Review details and submit the transaction. When you convert your fixed rate loan to a different fixed rate, you will pay a fee to exit your current loan early + a fee to enter into a new fixed rate loan position.
### Converting to liquidity To convert your fixed rate loan into providing liquidity follow these steps: 1. Select the liquidity option on the manage menu. 2. Click submit. 3. Review details and click submit again. When you convert your fixed rate loan to providing liquidity, you will see a fee for exiting your fixed rate position early. You may also see a fee or rebate for providing liquidity. Both fees will show up on the trade summary.
### Converting to a variable rate To convert your fixed rate loan into variable rate lending, follow these steps: 1. Select the variable lend option on the manage menu. 2. Click submit. 3. Review details and click submit again. When you convert your fixed rate loan to variable rate lending, you will see a fee for exiting your fixed rate position early.
## Withdrawing your assets To withdraw your assets, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to withdraw. 3. Click the withdraw button.
4. Enter the amount you want to withdraw. 5. Click submit. 6. Review details and click submit again. ## Fees Lending at a fixed rate includes a fee when you enter the position and when you exit before maturity. If you exit after maturity, there is no fee for withdrawing your assets. The fee for lending fixed is 8% of the total interest you will earn until maturity, paid upfront. This means that fees are higher when interest rates are higher and when you are lending for longer periods of time. Fees go to zero as you get closer to maturity. ### Example entry fee calculation * User wants to lend 100,000 USDC at a fixed rate of 10% for 6 months. * Total guaranteed interest = 100,000 USDC \* 10% / 2 = 5,000 USDC. * Entry fee = 5,000 USDC \* 0.08 = 400 USDC. ### Early exit If you want to exit your loan early, you will need to pay another fee. This fee will be 8% of the remaining interest at the current market APY, not at the rate you locked in when you entered. ### Example exit fee calculation * User lent 100,000 USDC at a fixed rate of 10% for 6 months. * User waits 3 months and then wants to exit. The current market rate is still 10%. * Total remaining interest = 100,000 USDC \* 10% / 4 = 2,500 USDC. * Exit fee = 2,500 USDC \* 0.08 = 200 USDC. ## Slippage When you lend at a fixed rate, you are using Notional's fixed rate liquidity provided by Notional liquidity providers. This means that the amount you want to lend changes the fixed rate you get. When you lend more, the rate you get will be lower. This is similar to buying a token - the more you want to buy, the higher the price you pay. # Providing Liquidity ## Overview * Liquidity providers deposit assets into Notional's fixed rate markets. LPs earn interest, fees, and NOTE incentives. * Providing liquidity is passive and usually earns higher yield than variable rate lending or fixed rate lending because of fees and incentives. * Providing liquidity has some IL risk and can be temporarily illiquid. It is best for users who hold their position for the longer term and don't worry about short-term IL. ## Creating a position To provide liquidity, follow these steps: 1. Go to the [provide liquidity page](https://notional.finance/liquidity-variable/mainnet). 2. Pick a network.
3. Pick the asset you want to provide. 4. Input the amount you want to provide.
5. Click Continue to Review. 6. Click Submit. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page shows you detailed info about your position. You can see: 1. Your APY. 2. How much you deposited. 3. The current value of your position. 4. Your earnings.
## Managing your position To manage your position, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to manage. 3. Click the manage button.
This gives you two options. You can: 1. Convert your liquidity into a variable rate loan. 2. Convert your liquidity into a fixed rate loan.
### Converting to a fixed rate loan To convert your liquidity to a fixed rate: 1. Decide on the maturity and fixed rate.
2. Click submit. 3. Review details and submit the transaction. When you convert your liquidity to a fixed rate loan, you will pay a redemption + a fee to enter into a new fixed rate loan position.
### Converting to a variable rate loan To convert your liquidity into variable rate lending, follow these steps: 1. Select the variable lend option on the manage menu. 2. Click submit. 3. Review details and click submit again. When you convert your liquidity to variable rate lending, you will see a redemption fee.
## Withdrawing your assets To withdraw your assets, follow these steps: 1. Go to the portfolio holdings tab. 2. Expand the row of the asset you want to withdraw. 3. Click the withdraw button.
4. Enter the amount you want to withdraw. 5. Click submit. 6. Review details and click submit again. ## Fees Providing liquidity involves transaction fees on minting and redemption. ### Minting fees Minting fees are variable and depend on the volatility in Notional's fixed rate markets. If fixed rates have moved a lot in the last few hours, you will see high mint fees. Mint fees go to zero over time as fixed rates stop moving. This encourages users to wait until fixed rates stabilize before providing liquidity. If you see high mint fees, it could be a good idea to wait and check back again in a few hours before providing liquidity. NOTE - in special circumstances when utilization and fixed rates are very high, users may see a rebate instead of a fee. This is meant to encourage users to deposit and bring utilization down. ### Redemption fees Redemption fees are based on utilization. The higher the utilization of Notional's fixed rate markets, the larger the redemption fee will be. Redemption fees are generally less than 0.1%. But in extreme scenarios where utilization is very high, redemption fees can get as high as 0.25% - 0.5%. ## Liquidity risk Providing liquidity can temporarily become unredeemable due to high utilization on Notional's fixed rate markets. In these scenarios, redemption fees are either very high or it can become impossible to redeem liquidity at all. High utilization on Notional's fixed rate markets is caused by high demand to borrow at fixed rates. When this kind of demand occurs and fixed rate markets become highly utilized, the APY of providing liquidity and lending fixed becomes very high. High APYs help to attract additional liquidity and fixed rate lenders. This brings utilization down and makes liquidity redeemable again. During periods of high utilization, it is best to wait until utilization stabilizes to try and redeem your assets in order to avoid paying high fees. If you are not comfortable taking this liquidity risk, consider other products like variable rate lending which does not have this risk. ## IL risk Providing liquidity can lead to impermanent loss as fixed interest rates move. When fixed interest rates go **up**, LPs will **lose** money. When fixed interest rates go **down**, LPs will **make** money. The amount of IL is small because the fCash assets in fixed rate liquidity pools usually don't move that much in price terms. For example, here is how the price of USDC fixed rate liquidity changed between March and June 2024 on Arbitrum:
USDC fixed rates were **highly volatile** between March and April, but the nUSDC price never fell by more than 1%. That level of volatility is rare, and in general you should expect smoother price appreciation like LPs saw in May. # Borrowing ## Overview * Borrowing lets you borrow against your crypto at a variable rate. * Borrowing requires collateral. * Borrowers can be liquidated if the value of their collateral falls below their liquidation price. ## Creating a position To take out a loan, follow these steps. ### Depositing collateral On Notional, your collateral earns yield. By default, your collateral will earn the variable lending rate. But you can also choose to lend your collateral at a fixed rate or provide it as liquidity. Deciding how to use your collateral will affect the APY that you earn and the max LTV on your loan. Lending will give you the highest LTV while fixed rate lending or liquidity will usually give you a higher APY but a slightly lower max LTV. Once you've decided how you want to deposit your collateral, make your deposit. Use the [lending](/notional-v3/product-guides/lending), [fixed rate lending](/notional-v3/product-guides/fixed-rate-lending), or [providing liquidity](/notional-v3/product-guides/providing-liquidity) guide for reference on how to do this. ### Taking out your loan 1. Go to the [borrow page](https://notional.finance/borrow-variable/mainnet). 2. Pick a network.
3. Pick the asset you want to borrow. 4. Input the amount you want to borrow. 5. Check your liquidation risk. Notional shows you a health factor and liquidation prices to help determine your risk:
The health factor gives an approximation of how risky your account is. The liquidation prices give you specific market prices which would cause you to be liquidated. In this case (user is borrowing USDC against ETH), the account would get liquidated if the price of ETH fell to $1,360 or if the price of USDC rose to $2.59. 6. Click Continue to Review. 7. Click Submit. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page shows you detailed info about your position. You can see: 1. **Details about your collateral**. It's value, what APY it's earning, etc. 2. **Details about your debt**. The amount you owe, the APY, how much interest you've accrued. 3. **Your liquidation risk**. Your health factor, your liquidation prices.
## Managing your position This guide will show you how to take all the actions you might want to take with your loan. ### Depositing collateral To deposit more collateral, follow these steps: 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Click on the "Reduce Risk" button at the top of the page and select "Deposit Collateral"
3. Select what token you want to deposit as collateral and input how much. See the [depositing collateral](#depositing-collateral) section of this guide for more info on how to decide a deposit type.
4. Choose the deposit asset type from the dropdown menu.
5. Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
6. Click "Continue to Review," then click "Submit". ### Repaying debt To repay your debt using tokens in your wallet, follow these steps: 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Click on the "Reduce Risk" button at the top of the page and select "Repay Debt"
3. Choose the debt to repay and enter the amount you want to repay in the repayment field.
4. Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
5. Click "Continue to Review," then click "Submit". ### Converting debt to fixed rate 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Find your debt, expand the row, and click "Manage".
3. Choose which maturity / fixed rate you want for your debt.
4. Enter the amount of debt you want to convert. You can convert some of your loan or all of it. 5. NOTE - liquidation risk may change slightly due to rolling. You will also pay a fee to fix your rate. The fee can be seen in the trade summary.
## LTVs and liquidation risk Loan to Value (LTV) is the value of your loan divided by the value of your collateral. The higher your LTV, the riskier your position. If your position goes above the Max LTV, you can be liquidated. ### Calculating Max LTV Max LTVs on Notional are calculated using a collateral factor and a debt factor. Every collateral type has a collateral factor and every debt type has a debt factor. ``` Max LTV = collateral factor / debt factor ``` For example, ETH variable rate lending has a collateral factor of 0.87 and USDC variable rate borrowing has a debt factor of 1.09. The Max LTV = 0.798 ### Collateral factors Each collateral type has a collateral factor. Collateral factors can be different depending on collateral types even if the token is the same. For example, fixed rate ETH lending has a different collateral factor than variable rate ETH lending. To find collateral factors: 1. Go to the [lending](https://notional.finance/lend-variable/arbitrum), [fixed rate lending](https://notional.finance/lend-variable/arbitrum), or [provide liquidity](https://notional.finance/liquidity-variable/arbitrum) page. 2. Select the "list" view.
3. Find the collateral factors for that collateral deposit type along the right-hand side.
### Debt factors Each debt type has a debt factor. Debt factors can be different depending on debt types even if the token is the same. For example, fixed rate USDC borrowing has a different debt factor than variable rate USDC borrowing. To find debt factors: 1. Go to the [borrowing](https://notional.finance/borrow-variable/mainnet) or [fixed rate borrowing](https://notional.finance/borrow-fixed/mainnet) page. 2. Select the "list" view.
3. Find the debt factors for that debt type along the right-hand side.
### Monitoring risk Notional helps you monitor your liquidation risk in three ways: 1. **Health factor.** The health factor is a number from 1 - 5 that gives you an approximate sense of your risk. If it drops below 1, you can be liquidated. 2. **LTV**. Loan to Value (LTV) = the value of your debt / the value of your collateral. 3. **Liquidation prices**. Notional shows you what the price of your collateral or debt would have to get to for you to get liquidated. You can find these risk metrics on the [portfolio holdings page](https://notional.finance/portfolio/mainnet/holdings).
## Liquidations If you become under-collateralized you can be liquidated immediately. Notional uses a fixed discount liquidation system with a default liquidation amount of 40%. That means that a liquidator can purchase up to 40% of one of your collateral assets at a fixed discount to its oracle price. If 40% of your collateral is not enough to return your account to the minimum collateralization level, the liquidator can purchase as much of your collateral as necessary to get you back to the minimum level after the liquidation. ### Liquidation discounts Each token has a liquidation discount. The discount that a liquidator will get is the max of the collateral token's liquidation discount and the debt token's liquidation discount. For example, say that the USDC liquidation discount is 2%, the ETH liquidation discount is 5%, and you are borrowing ETH vs. USDC collateral. A liquidator would get a 5% discount to liquidate your USDC and repay your ETH debt even though USDC's liquidation discount is only 2%. # Fixed Rate Borrowing ## Overview * Fixed rate borrowing lets you borrow against your crypto at a fixed rate. * Borrowing requires collateral. * Borrowers can be liquidated if the value of their collateral falls below their liquidation price. ## Creating a position To take out a loan, follow these steps. ### Depositing collateral On Notional, your collateral earns yield. By default, your collateral will earn the variable lending rate. But you can also choose to lend your collateral at a fixed rate or provide it as liquidity. Deciding how to use your collateral will affect the APY that you earn and the max LTV on your loan. Lending will give you the highest LTV while fixed rate lending or liquidity will usually give you a higher APY but a slightly lower max LTV. Once you've decided how you want to deposit your collateral, make your deposit. Use the [lending](/notional-v3/product-guides/lending), [fixed rate lending](/notional-v3/product-guides/fixed-rate-lending), or [providing liquidity](/notional-v3/product-guides/providing-liquidity) guide for reference on how to do this. ### Taking out your loan 1. Go to the [fixed rate borrow page](https://notional.finance/borrow-fixed/mainnet). 2. Pick a network.
3. Pick the asset you want to borrow. 4. Input the amount you want to borrow and select a maturity.
5. Check your liquidation risk. Notional shows you a health factor and liquidation prices to help determine your risk:
The health factor gives an approximation of how risky your account is. The liquidation prices give you specific market prices which would cause you to be liquidated. In this case (user is borrowing USDC against ETH), the account would get liquidated if the price of ETH fell to $1,360 or if the price of USDC rose to $2.59. 6. Click Continue to Review. 7. Click Submit. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page shows you detailed info about your position. You can see: 1. **Details about your collateral**. It's value, what APY it's earning, etc. 2. **Details about your debt**. The amount you owe, the APY, how much interest you've accrued. 3. **Your liquidation risk**. Your health factor, your liquidation prices.
### Market APY vs. APY at Maturity The UI shows two APYs for a fixed rate debt - a Market APY and an APY at Maturity. * **Market APY:** The current fixed APY offered at this maturity. * **APY at Maturity:** The fixed rate you got when you entered into the position. Changes to the Market APY do not affect the APY at Maturity. If you hold the position to maturity you will get the APY at Maturity no matter what happens to the Market APY before maturity. The Market APY matters if you want to exit your loan before maturity. Changes to the Market APY before maturity will cause your total earnings to fluctuate and change the amount that you can withdraw. ## Managing your position This guide will show you how to take all the actions you might want to take with your loan. ### Depositing collateral To deposit more collateral, follow these steps: 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Click on the "Reduce Risk" button at the top of the page and select "Deposit Collateral"
3. Select what token you want to deposit as collateral and input how much. See the [depositing collateral](#depositing-collateral) section of this guide for more info on how to decide a deposit type.
4. Choose the deposit asset type from the dropdown menu.
5. Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
6. Click "Continue to Review," then click "Submit". ### Repaying debt To repay your debt using tokens in your wallet, follow these steps: 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Click on the "Reduce Risk" button at the top of the page and select "Repay Debt"
3. Choose the debt to repay and enter the amount you want to repay in the repayment field.
4. Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
5. Click "Continue to Review," then click "Submit". ### Converting debt to variable rate 1. Go to the [portfolio holdings page](https://notional.finance/portfolio/arbitrum/holdings). 2. Find your debt, expand the row, and click "Manage".
3. Select the variable rate.
4. Enter the amount of debt you want to convert. You can convert some of your loan or all of it. 5. NOTE - liquidation risk may change slightly due to rolling. You will also pay a fee to exit your fixed rate loan early. The fee can be seen in the trade summary.
## Fees Borrowing at a fixed rate includes a fee when you enter the position and when you exit before maturity. If you exit after maturity, there is no fee for withdrawing your assets. The fee for borrowing fixed is 8% of the total interest you will owe at maturity, paid upfront. This means that fees are higher when interest rates are higher and when you are borrowing for longer periods of time. Fees go to zero as you get closer to maturity. ### Example entry fee calculation * User wants to borrow 100,000 USDC at a fixed rate of 10% for 6 months. * Total guaranteed interest = 100,000 USDC \* 10% / 2 = 5,000 USDC. * Entry fee = 5,000 USDC \* 0.08 = 400 USDC. ### Early exit If you want to exit your loan early, you will need to pay another fee. This fee will be 8% of the remaining interest at the current market APY, not at the rate you locked in when you entered. ### Example exit fee calculation * User borrowed 100,000 USDC at a fixed rate of 10% for 6 months. * User waits 3 months and then wants to exit. The current market rate is still 10%. * Total remaining interest = 100,000 USDC \* 10% / 4 = 2,500 USDC. * Exit fee = 2,500 USDC \* 0.08 = 200 USDC. ## LTVs and liquidation risk Loan to Value (LTV) is the value of your loan divided by the value of your collateral. The higher your LTV, the riskier your position. If your position goes above the Max LTV, you can be liquidated. ### Calculating Max LTV Max LTVs on Notional are calculated using a collateral factor and a debt factor. Every collateral type has a collateral factor and every debt type has a debt factor. ``` Max LTV = collateral factor / debt factor ``` For example, ETH variable rate lending has a collateral factor of 0.87 and USDC fixed rate borrowing has a debt factor of 1.15. The Max LTV = 0.75 ### Collateral factors Each collateral type has a collateral factor. Collateral factors can be different depending on collateral types even if the token is the same. For example, fixed rate ETH lending has a different collateral factor than variable rate ETH lending. To find collateral factors: 1. Go to the [lending](https://notional.finance/lend-variable/arbitrum), [fixed rate lending](https://notional.finance/lend-variable/arbitrum), or [provide liquidity](https://notional.finance/liquidity-variable/arbitrum) page. 2. Select the "list" view.
3. Find the collateral factors for that collateral deposit type along the right-hand side.
### Debt factors Each debt type has a debt factor. Debt factors can be different depending on debt types even if the token is the same. For example, fixed rate USDC borrowing has a different debt factor than variable rate USDC borrowing. To find debt factors: 1. Go to the [borrowing](https://notional.finance/borrow-variable/mainnet) or [fixed rate borrowing](https://notional.finance/borrow-fixed/mainnet) page. 2. Select the "list" view.
3. Find the debt factors for that debt type along the right-hand side.
### Monitoring risk Notional helps you monitor your liquidation risk in three ways: 1. **Health factor.** The health factor is a number from 1 - 5 that gives you an approximate sense of your risk. If it drops below 1, you can be liquidated. 2. **LTV**. Loan to Value (LTV) = the value of your debt / the value of your collateral. 3. **Liquidation prices**. Notional shows you what the price of your collateral or debt would have to get to for you to get liquidated. You can find these risk metrics on the [portfolio holdings page](https://notional.finance/portfolio/mainnet/holdings).
## Liquidations If you become under-collateralized you can be liquidated immediately. Notional uses a fixed discount liquidation system with a default liquidation amount of 40%. That means that a liquidator can purchase up to 40% of one of your collateral assets at a fixed discount to its oracle price. If 40% of your collateral is not enough to return your account to the minimum collateralization level, the liquidator can purchase as much of your collateral as necessary to get you back to the minimum level after the liquidation. ### Liquidation discounts Each token has a liquidation discount. The discount that a liquidator will get is the max of the collateral token's liquidation discount and the debt token's liquidation discount. For example, say that the USDC liquidation discount is 2%, the ETH liquidation discount is 5%, and you are borrowing ETH vs. USDC collateral. A liquidator would get a 5% discount to liquidate your USDC and repay your ETH debt even though USDC's liquidation discount is only 2%. # Leveraged Liquidity ## Overview * Leveraged liquidity is an advanced yield strategy to provide liquidity to Notional's fixed rate liquidity pools using leverage sourced from Notional. * This product gives you leveraged exposure to the yield from providing fixed rate liquidity - the interest, fixed rate trading fees, and NOTE incentives. * Leveraged liquidity has IL risk, negative APY risk, and liquidity risk. It's best for users that want to earn NOTE and hold the position for the medium-term. ## Creating a position To create a leveraged liquidity position, follow these steps: 1. Go to the [leveraged liquidity page](https://notional.finance/liquidity-leveraged/mainnet). 2. Pick a network.
3. Pick the token you want to use. 4. Input the deposit amount and select your borrow terms. Borrow term options show you the total APY that you will earn and the borrow APY that you will pay on your leverage.
5. Select your leverage using the leverage slider. 6. Click Continue to Review. 7. Click Submit. ### Selecting borrow terms Depositing to a leveraged liquidity position involves borrowing from Notional's lending markets. You can borrow at a variable rate or at a fixed rate. **Variable borrow** * Zero fee on entry or exit. * Borrow rate can be volatile. * Good choice if you are short-term or if you think fixed borrow rates are too high. **Fixed borrow** * Upfront fee on entry and exit before maturity. (More info on fixed rate fees [here](broken://pages/pgsczTHjbW0bEak3sO18#fees)). * Borrow rate is fixed. * Good choice if you are longer-term or think the fixed rate is low. * At maturity, your fixed rate auto-converts to a variable rate and your position remains open. ### Selecting leverage Selecting your leverage changes how much you borrow which changes the borrow rate and the total APY. The more leverage you use, the more you borrow. Usually, this means that your total APY goes up. But it can also make your total APY go down if you borrow so much that it spikes your borrow rate.
### Understanding Total APY Total APY depends on three things: 1. The APY on providing liquidity. 2. The APY spread. (APY spread = liquidity APY - borrow APY) 3. The leverage ratio. You can find the calculation on the left-hand side of the page.
**Organic APY vs. NOTE APY** Total APY = Organic APY + NOTE APY The organic APY is the APY before NOTE incentives. If it is negative, it means that you will lose money if you ignore NOTE incentives. The NOTE APY is how much of your Total APY comes from NOTE incentives. ## Viewing your position To find your position, go to the holdings tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page will give you detailed information regarding your position, including: 1. Your current APY 2. How much you deposited 3. The current value of your position 4. Your current earnings ### Default vs. Detailed view The Notional UI gives you two options for how to view your position. You can switch between the views using the toggle in the upper right-hand corner of the portfolio holdings module.
**Default view:** The Default view shows your position as one line item and gives you a good overview:
**Detailed view:** The Detailed view shows your position in two parts - the liquidity asset and the debt:
The detailed view allows you to see exactly what you hold and give you a breakdown of your earnings and asset value by each part of your overall position. ### Liquidation price The Notional UI will show you a health factor and a liquidation price for your position.
## Managing your position To manage your position, switch to the default portfolio view and expand the position row. Then click the manage button.
The manage button gives you a few options: * Deposit more * Adjust leverage * Withdraw * Switch borrow terms ### Depositing more * To deposit more, click the button that says Deposit. * This will take you to a transaction page with a deposit input field. * Your borrow terms and leverage ratio will be kept the same as you deposit more. ### Adjusting leverage Adjusting leverage allows you to increase or decrease your leverage **without depositing more tokens or withdrawing from Notional**. Click the adjust leverage button and move the slider to your desired leverage. You can see the impact on your position on the UI:
### Switching borrow terms Switching your borrow terms lets you swap your leverage in one click while keeping your position open. Users might want to do this if a different borrow term gives them a higher total APY. For example, if the variable borrow rate spikes, a user might want to switch from the variable borrow rate to a lower fixed rate in order to protect their total APY. On the manage position menu, you will see one button for each borrow maturity. You will see the Total APY that you would get if you switched your borrow to that maturity.
To switch your borrow terms, just click the button and submit the transaction on the next screen. ## Fees Leveraged liquidity has two kinds of fees - liquidity fees and borrow fees. ### Liquidity fees When you deposit into a leveraged liquidity strategy, you are providing liquidity. This means that you will see a liquidity mint fee on entry and liquidity redemption fee on exit. Read more about liquidity fees [here](/notional-v3/product-guides/providing-liquidity#fees). The Notional UI will show you a detailed breakdown of the liquidity fees on the trade summary when you enter or exit your position.
### Borrow fees Leveraged liquidity strategies include borrowing, which can include fees. Variable borrowing does not include an upfront fee, but fixed rate borrowing does. Read more about fixed rate borrow fees [here](broken://pages/pgsczTHjbW0bEak3sO18#fees). The Notional UI will show you a detailed breakdown of the borrow fees on the trade summary when you enter or exit your position.
## Liquidation risk Leveraged liquidity includes liquidation risk. Remember - you're borrowing from Notional and using the borrowed funds to provide fixed rate liquidity. That means, you're getting **leveraged long** Notional's fixed rate liquidity tokens (we call these nTokens). Liquidation can occur if the price of nTokens drops. To find out why the price of nTokens changes, skip ahead to the [IL Risk](#il-risk) section. You can see the historical price of nTokens on the transaction page along with your liquidation price:
As you can see, nToken prices are not very volatile, so this user is not likely to get liquidated because their liquidation price is far below the current nToken price. ## IL risk Providing liquidity can lead to impermanent loss as fixed interest rates move. When fixed interest rates go **up**, nToken prices go **down**. When fixed interest rates go **down**, nToken prices go **up**. For users who are providing liquidity without leverage, IL risk is small. But when you use leverage, IL risk can be significant. For example, USDC fixed rates were **highly volatile** between March and April on Arbitrum, but the nUSDC price never fell by more than 1%:
If you were unleveraged, the worst loss you would have gotten was about 0.75%. But if you were 5x leveraged, that would have been a 3.75% loss on your capital. But this goes both ways. If you provide liquidity just before fixed rates go down and the nToken price spikes up, you can make extra money by using leverage. ## Negative APY risk It's possible for leveraged liquidity positions to have a negative Total APY if the borrow rate increases above the liquidity yield. In practice this is rare, but if it happens, it is usually because of two reasons: 1. The user has borrowed at a variable rate for their leverage 2. A liquidity crunch drives variable borrow rates temporarily very high due to high utilization In this situation, the variable borrow rate is temporarily higher than the liquidity yield which causes a negative total APY. To protect against this, users can use the fixed rate borrowing option to lock in their leverage cost. ## Liquidity risk Providing liquidity can temporarily become unredeemable due to high utilization on Notional's fixed rate markets. In these scenarios, redemption fees are either very high or it can become impossible to redeem liquidity at all. This can be very risky for leveraged liquidity users because of [negative APY risk](#negative-apy-risk). If nTokens are illiquid at the same time as leveraged liquidity users have a negative APY, they can be temporarily stuck in a loss-making position. The best way to protect against this risk is to use a fixed borrow rate instead of a variable borrow rate. ### nToken illiquidity cause nToken illiquidity is caused by high utilization on Notional's fixed rate markets. High utilization on Notional's fixed rate markets is caused by high demand to borrow at fixed rates. When this kind of demand occurs and fixed rate markets become highly utilized, the APY of providing liquidity and lending fixed becomes very high. High APYs help to attract additional liquidity and fixed rate lenders. This brings utilization down and makes liquidity redeemable again. ## Fixed vs Variable Borrow When you borrow in leveraged liquidity, there are two types of borrowing: * **Fixed Rate Borrowing**: This locks in a borrowing rate for the duration of the loan, so you know exactly how much interest you will pay by the time the loan matures. However, if you want to repay the loan early, the current market rate for fixed-rate borrowing comes into play. The amount you will owe may fluctuate based on whether the rate has gone up or down since you first borrowed. This can lead to profit or loss if you exit early. * **Variable Rate Borrowing**: With a variable rate, your interest rate can change block by block, meaning the amount of interest you owe is continuously adjusted based on the market rate. There’s no upfront fee for liquidity providers as the rate is always moving. ### Borrow Interest Accrual on Fixed Rate Loans When you take out a fixed-rate loan, you pay interest on that loan at the agreed-upon rate (e.g., 9.34% per year). The "fixed" part means that no matter what happens to the market rates after you lock in your loan, your interest rate won't change. However, if you want to close your position early, the present fixed rate in the market will impact the amount you owe. For example: Let’s say you borrow 100 ETH at a fixed rate of 5% for one year. If you hold the loan to maturity, you’ll owe exactly 5 ETH in interest. However, if you want to exit early, say after six months, the current fixed rate affects your payoff: * **If rates stay at 5%**: You have held your loan for half the time and will need to pay half the interest upon exit, or 2.5 ETH. * **If rates rise to 8%**: Your debt becomes cheaper. It might cost you only 2.4 ETH to repay instead of 2.5 ETH, meaning you save on interest by exiting early. * **If rates fall to 3%**: Your debt becomes more expensive. It could now cost 2.6 ETH to repay, meaning you’ll pay more to close the position early. That’s why Notional shows you changes in the value of your debt even though you’ve locked in a fixed rate — it affects early repayments. ### Why Does Present Value Fluctuate with Fixed Rates? The "Present Value" of your position can change because of: * **Borrow Interest Accrual**: As time passes, the interest on your loan adds up, affecting your position’s value. * **Market Rate Movements**: Even though your fixed-rate loan is locked in, market rates fluctuate. If you were to close your position before maturity, the value of your debt might be higher or lower depending on where the current fixed rate stands compared to your locked-in rate. ### Withdrawal Value Discrepancies for Fixed Rate Positions If you notice a difference between your "Present Value" and the amount displayed on the withdrawal screen, it’s likely due to slippage caused by low fixed rate liquidity. If you have a large debt repayment, the fixed rate can move significantly, resulting in slippage loss. You can estimate the slippage loss using this formula: * **Slippage Loss** = Debt Repayment Amount × Slippage Percent × Year Fraction * Example: If repaying 253 ETH causes a 3.6% slippage over 3 months, slippage loss is approximately 2.27 ETH. (253 \* 0.036 \* 0.25) # Leveraged Yield Farming ## Overview * Leveraged yield farming is an advanced yield strategy to earn yield from providing liquidity on pegged-asset liquidity pools on Balancer and Curve. * This product gets leverage from Notional, deploys into a liquidity pool, and then harvests and auto-reinvests the earned incentives. * Leveraged yield farming gives users **organic yield** paid in the deposit token. This is a good strategy for active users who want to maximize their APY and are comfortable with APY volatility. ## Creating a position To create a leveraged yield farming position, follow these steps: 1. Go to the [leveraged yield farming page](https://notional.finance/leveraged-yield-farming/mainnet). 2. Pick a network.
3. Pick your opportunity. Each opportunity card shows the deposit token and the pool it deploys into:
4. Input the deposit amount and select your borrow terms. Borrow term options show you the total APY that you will earn and the borrow APY that you will pay on your leverage.
5. Select your leverage using the leverage slider. 6. Click Continue to Review. 7. Click Submit. ### Selecting borrow terms Depositing to a leveraged yield farming position involves borrowing from Notional's lending markets. You can borrow at a variable rate or at a fixed rate. **Variable borrow** * Zero fee on entry or exit. * Borrow rate can be volatile. * Good choice if you are short-term or if you think fixed borrow rates are too high. **Fixed borrow** * Upfront fee on entry and exit before maturity. (More info on fixed rate fees [here](broken://pages/pgsczTHjbW0bEak3sO18#fees)). * Borrow rate is fixed. * Good choice if you are longer-term or think the fixed rate is low. * At maturity, your fixed rate auto-converts to a variable rate and your position remains open. ### Selecting leverage Selecting your leverage changes how much you borrow which changes the borrow rate and the total APY. The more leverage you use, the more you borrow. Usually, this means that your total APY goes up. But it can also make your total APY go down if you borrow so much that it spikes your borrow rate.
### Understanding Total APY Total APY depends on three things: 1. The APY on vault shares. 2. The APY spread. (APY spread = vault share APY - borrow APY) 3. The leverage ratio. You can find the calculation on the left-hand side of the page.
## Viewing your position To find your position, go to the leveraged vaults tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page will give you detailed information regarding your position, including: 1. Your current APY 2. How much you deposited 3. The current value of your position 4. Your current earnings ### Liquidation price The Notional UI will show you a health factor and a liquidation price for your position.
The liquidation price is in terms of the **vault share price**. As vaults receive reinvestments, the vault share price increases. If the value of the vault's LP tokens decreases, the vault share price will decrease. ## Managing your position To manage your position, switch to the default portfolio view and expand the position row. Then click the manage button.
The manage button gives you a few options: * Deposit more * Adjust leverage * Withdraw * Switch borrow terms ### Depositing more * To deposit more, click the button that says Deposit. * This will take you to a transaction page with a deposit input field. * Your borrow terms and leverage ratio will be kept the same as you deposit more. ### Adjusting leverage Adjusting leverage allows you to increase or decrease your leverage **without depositing more tokens or withdrawing from Notional**. Click the adjust leverage button and move the slider to your desired leverage. You can see the impact on your position on the UI:
### Switching borrow terms Switching your borrow terms lets you swap your leverage in one click while keeping your position open. Users might want to do this if a different borrow term gives them a higher total APY. For example, if the variable borrow rate spikes, a user might want to switch from the variable borrow rate to a lower fixed rate in order to protect their total APY. On the manage position menu, you will see one button for each borrow maturity. You will see the Total APY that you would get if you switched your borrow to that maturity.
To switch your borrow terms, just click the button and submit the transaction on the next screen. ## Fees Leveraged yield farming has two kinds of fees - trading costs and borrow fees. ### Trading costs When you deposit into a leveraged yield farming strategy, the strategy will enter the liquidity pool on the DEX. This involves trading costs because the strategy needs to trade some of the deposit tokens for the other tokens in the pool before entering. These same costs will occur on exit - the strategy will need to trade back to the deposit token to give that token back to you. The Notional UI will show you a detailed breakdown of the trading costs on the trade summary when you enter or exit your position.
### Borrow fees Leveraged yield farming strategies include borrowing, which can include fees. Variable borrowing does not include an upfront fee, but fixed rate borrowing does. Read more about fixed rate borrow fees [here](/notional-v3/product-guides/fixed-rate-borrowing#fees). The Notional UI will show you a detailed breakdown of the borrow fees on the trade summary when you enter or exit your position.
## Liquidation risk Leveraged yield farming includes liquidation risk. Remember - you're borrowing from Notional and using the borrowed funds to provide liquidity on a DEX. Liquidation can occur if the price of vault shares drops. Vault shares hold the strategy's LP tokens, so the way that the price could drop is if one of the tokens in the liquidity pool loses its peg. This means that the risk of liquidation is driven by potential de-pegs of one of the tokens in the liquidity pool, so be sure to choose liquidity pools carefully. ## Negative APY risk It's possible for leveraged yield farming positions to have a negative Total APY if the borrow rate increases above the vault share yield. One way of reducing this risk is to use a fixed borrow rate. ## Fixed vs Variable Borrow When you borrow in leveraged yield farming, there are two types of borrowing: * **Fixed Rate Borrowing**: This locks in a borrowing rate for the duration of the loan, so you know exactly how much interest you will pay by the time the loan matures. However, if you want to repay the loan early, the current market rate for fixed-rate borrowing comes into play. The amount you will owe may fluctuate based on whether the rate has gone up or down since you first borrowed. This can lead to profit or loss if you exit early. * **Variable Rate Borrowing**: With a variable rate, your interest rate can change block by block, meaning the amount of interest you owe is continuously adjusted based on the market rate. There’s no upfront fee for liquidity providers as the rate is always moving. ### Borrow Interest Accrual on Fixed Rate Loans When you take out a fixed-rate loan, you pay interest on that loan at the agreed-upon rate (e.g., 9.34% per year). The "fixed" part means that no matter what happens to the market rates after you lock in your loan, your interest rate won't change. However, if you want to close your position early, the present fixed rate in the market will impact the amount you owe. For example: Let’s say you borrow 100 ETH at a fixed rate of 5% for one year. If you hold the loan to maturity, you’ll owe exactly 5 ETH in interest. However, if you want to exit early, say after six months, the current fixed rate affects your payoff: * **If rates stay at 5%**: You have held your loan for half the time and will need to pay half the interest upon exit, or 2.5 ETH. * **If rates rise to 8%**: Your debt becomes cheaper. It might cost you only 2.4 ETH to repay instead of 2.5 ETH, meaning you save on interest by exiting early. * **If rates fall to 3%**: Your debt becomes more expensive. It could now cost 2.6 ETH to repay, meaning you’ll pay more to close the position early. That’s why Notional shows you changes in the value of your debt even though you’ve locked in a fixed rate — it affects early repayments. ### Why Does Present Value Fluctuate with Fixed Rates? The "Present Value" of your position can change because of: * **Borrow Interest Accrual**: As time passes, the interest on your loan adds up, affecting your position’s value. * **Market Rate Movements**: Even though your fixed-rate loan is locked in, market rates fluctuate. If you were to close your position before maturity, the value of your debt might be higher or lower depending on where the current fixed rate stands compared to your locked-in rate. ### Why the Upfront Fee for Fixed Rate Borrowing? The fee you pay upfront for fixed-rate borrowing covers two things: * **Liquidity Provider Fee**: Just like with any other trade in a market, there’s a fee associated with borrowing from a fixed-rate liquidity pool. This fee compensates liquidity providers who enable you to access the fixed rate. * **Vault Fee**: Leveraged strategies often charge an extra fee for the additional complexity and risk involved. This fee is charged upfront for fixed-rate borrowing, while for variable-rate borrowing, it's spread out over time. ### Withdrawal Value Discrepancies for Fixed Rate Positions If you notice a difference between your "Present Value" and the amount displayed on the withdrawal screen, it’s likely due to slippage caused by low fixed rate liquidity. If you have a large debt repayment, the fixed rate can move significantly, resulting in slippage loss. You can estimate the slippage loss using this formula: * **Slippage Loss** = Debt Repayment Amount × Slippage Percent × Year Fraction * Example: If repaying 253 ETH causes a 3.6% slippage over 3 months, slippage loss is approximately 2.27 ETH. (253 \* 0.036 \* 0.25) # Leveraged Points Farming ## Overview * Leveraged points farming is an advanced yield strategy to earn points from partner protocols + yield from providing liquidity on pegged-asset liquidity pools on Balancer and Curve. * Leveraged points farming is the same as [leveraged yield farming](broken://pages/rpN40xPJy3JDaMgPef5f) but you also get leveraged points! ## Creating a position To create a leveraged points farming position, follow these steps: 1. Go to the [leveraged points farming page](https://notional.finance/leveraged-points-farming/mainnet). 2. Pick a network.
3. Pick your opportunity. Each opportunity card shows the deposit token, the pool it deploys into, and the points it earns:
4. Input the deposit amount and select your borrow terms. Borrow term options show you the total APY that you will earn and the borrow APY that you will pay on your leverage.
5. Select your leverage using the leverage slider. 6. Click Continue to Review. 7. Click Submit. ### Selecting borrow terms Depositing to a leveraged points farming position involves borrowing from Notional's lending markets. You can borrow at a variable rate or at a fixed rate. **Variable borrow** * Zero fee on entry or exit. * Borrow rate can be volatile. * Good choice if you are short-term or if you think fixed borrow rates are too high. **Fixed borrow** * Upfront fee on entry and exit before maturity. (More info on fixed rate fees [here](broken://pages/pgsczTHjbW0bEak3sO18#fees)). * Borrow rate is fixed. * Good choice if you are longer-term or think the fixed rate is low. * At maturity, your fixed rate auto-converts to a variable rate and your position remains open. ### Selecting leverage Selecting your leverage changes how much you borrow which changes the borrow rate and the total APY. The more leverage you use, the more you borrow. Usually, this means that your total APY goes up. But it can also make your total APY go down if you borrow so much that it spikes your borrow rate.
### Understanding Total APY Total APY depends on three things: 1. The APY on vault shares. 2. The APY spread. (APY spread = vault share APY - borrow APY) 3. The leverage ratio. You can find the calculation on the left-hand side of the page.
### Points APY Most of the APY in leveraged points farming strategies come from points! The points APY is determined by two things: 1. The points multiple on the strategy. 2. The points price. You can verify Notional's points multiple on partner protocol dashboards and you can check the points prices we assume on the transaction page.
You can also see how the points APYs contribute to the vault share APY on the transaction page:
## Viewing your position To find your position, go to the leveraged vaults tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page will give you detailed information regarding your position, including: 1. Your current APY 2. How much you deposited 3. The current value of your position 4. Your current earnings 5. A link to the partner protocol's points dashboard ### Liquidation price The Notional UI will show you a health factor and a liquidation price for your position.
The liquidation price is in terms of the **vault share price**. As vaults receive reinvestments, the vault share price increases. If the value of the vault's LP tokens decreases, the vault share price will decrease. ## Managing your position To manage your position, switch to the default portfolio view and expand the position row. Then click the manage button.
The manage button gives you a few options: * Deposit more * Adjust leverage * Withdraw * Switch borrow terms ### Depositing more * To deposit more, click the button that says Deposit. * This will take you to a transaction page with a deposit input field. * Your borrow terms and leverage ratio will be kept the same as you deposit more. ### Adjusting leverage Adjusting leverage allows you to increase or decrease your leverage **without depositing more tokens or withdrawing from Notional**. Click the adjust leverage button and move the slider to your desired leverage. You can see the impact on your position on the UI:
### Switching borrow terms Switching your borrow terms lets you swap your leverage in one click while keeping your position open. Users might want to do this if a different borrow term gives them a higher total APY. For example, if the variable borrow rate spikes, a user might want to switch from the variable borrow rate to a lower fixed rate in order to protect their total APY. On the manage position menu, you will see one button for each borrow maturity. You will see the Total APY that you would get if you switched your borrow to that maturity.
To switch your borrow terms, just click the button and submit the transaction on the next screen. ## Fees Leveraged points farming has two kinds of fees - trading costs and borrow fees. ### Trading costs When you deposit into a leveraged points farming strategy, the strategy will enter the liquidity pool on the DEX. This involves trading costs because the strategy needs to trade some of the deposit tokens for the other tokens in the pool before entering. These same costs will occur on exit - the strategy will need to trade back to the deposit token to give that token back to you. The Notional UI will show you a detailed breakdown of the trading costs on the trade summary when you enter or exit your position.
### Borrow fees Leveraged points farming strategies include borrowing, which can include fees. Variable borrowing does not include an upfront fee, but fixed rate borrowing does. Read more about fixed rate borrow fees [here](/notional-v3/product-guides/fixed-rate-borrowing#fees). The Notional UI will show you a detailed breakdown of the borrow fees on the trade summary when you enter or exit your position.
## Liquidation risk Leveraged points farming includes liquidation risk. Remember - you're borrowing from Notional and using the borrowed funds to provide liquidity on a DEX. Liquidation can occur if the price of vault shares drops. Vault shares hold the strategy's LP tokens, so the way that the price could drop is if one of the tokens in the liquidity pool loses its peg. This means that the risk of liquidation is driven by potential de-pegs of one of the tokens in the liquidity pool, so be sure to choose liquidity pools carefully. ## Negative APY risk It's possible for leveraged points farming positions to have a negative Total APY if the borrow rate increases above the vault share yield. One way this can happen is if the points you receive are worth less than the Notional UI assumed. To get the most accurate APY possible, always do your own research to come up with your own point value assumptions. ## Fixed vs Variable Borrow When you borrow in leveraged point farming, there are two types of borrowing: * **Fixed Rate Borrowing**: This locks in a borrowing rate for the duration of the loan, so you know exactly how much interest you will pay by the time the loan matures. However, if you want to repay the loan early, the current market rate for fixed-rate borrowing comes into play. The amount you will owe may fluctuate based on whether the rate has gone up or down since you first borrowed. This can lead to profit or loss if you exit early. * **Variable Rate Borrowing**: With a variable rate, your interest rate can change block by block, meaning the amount of interest you owe is continuously adjusted based on the market rate. There’s no upfront fee for liquidity providers as the rate is always moving. ### Borrow Interest Accrual on Fixed Rate Loans When you take out a fixed-rate loan, you pay interest on that loan at the agreed-upon rate (e.g., 9.34% per year). The "fixed" part means that no matter what happens to the market rates after you lock in your loan, your interest rate won't change. However, if you want to close your position early, the present fixed rate in the market will impact the amount you owe. For example: Let’s say you borrow 100 ETH at a fixed rate of 5% for one year. If you hold the loan to maturity, you’ll owe exactly 5 ETH in interest. However, if you want to exit early, say after six months, the current fixed rate affects your payoff: * **If rates stay at 5%**: You have held your loan for half the time and will need to pay half the interest upon exit, or 2.5 ETH. * **If rates rise to 8%**: Your debt becomes cheaper. It might cost you only 2.4 ETH to repay instead of 2.5 ETH, meaning you save on interest by exiting early. * **If rates fall to 3%**: Your debt becomes more expensive. It could now cost 2.6 ETH to repay, meaning you’ll pay more to close the position early. That’s why Notional shows you changes in the value of your debt even though you’ve locked in a fixed rate — it affects early repayments. ### Why Does Present Value Fluctuate with Fixed Rates? The "Present Value" of your position can change because of: * **Borrow Interest Accrual**: As time passes, the interest on your loan adds up, affecting your position’s value. * **Market Rate Movements**: Even though your fixed-rate loan is locked in, market rates fluctuate. If you were to close your position before maturity, the value of your debt might be higher or lower depending on where the current fixed rate stands compared to your locked-in rate. ### Why the Upfront Fee for Fixed Rate Borrowing? The fee you pay upfront for fixed-rate borrowing covers two things: * **Liquidity Provider Fee**: Just like with any other trade in a market, there’s a fee associated with borrowing from a fixed-rate liquidity pool. This fee compensates liquidity providers who enable you to access the fixed rate. * **Vault Fee**: Leveraged strategies often charge an extra fee for the additional complexity and risk involved. This fee is charged upfront for fixed-rate borrowing, while for variable-rate borrowing, it's spread out over time. ### Withdrawal Value Discrepancies for Fixed Rate Positions If you notice a difference between your "Present Value" and the amount displayed on the withdrawal screen, it’s likely due to slippage caused by low fixed rate liquidity. If you have a large debt repayment, the fixed rate can move significantly, resulting in slippage loss. You can estimate the slippage loss using this formula: * **Slippage Loss** = Debt Repayment Amount × Slippage Percent × Year Fraction * Example: If repaying 253 ETH causes a 3.6% slippage over 3 months, slippage loss is approximately 2.27 ETH. (253 \* 0.036 \* 0.25) # Leveraged Pendle PTs ## Overview * Leveraged Pendle PTs are an advanced yield strategy to earn fixed yield from Pendle PTs with leverage. * This strategy borrows from Notional at a fixed or variable rate and then buys a specific PT on Pendle. * This strategy gives users **organic yield** paid in the deposit token (ex USDC) even if the PT is based in a different token (ex USDe). ## Creating a position To create a leveraged PT position, follow these steps: 1. Go to the [leveraged PT page](https://notional.finance/leveraged-pendle/mainnet). 2. Pick a network.
3. Pick your opportunity. Each opportunity card shows the deposit token and the PT it buys.
4. Input the deposit amount and select your borrow terms. Borrow term options show you the total APY that you will earn and the borrow APY that you will pay on your leverage.
5. Select your leverage using the leverage slider. 6. Click Continue to Review. 7. Click Submit. ### Selecting borrow terms Depositing to a leveraged points farming position involves borrowing from Notional's lending markets. You can borrow at a variable rate or at a fixed rate. **Variable borrow** * Zero fee on entry or exit. * Borrow rate can be volatile. * Good choice if you are short-term or if you think fixed borrow rates are too high. **Fixed borrow** * Upfront fee on entry and exit before maturity. (More info on fixed rate fees [here](broken://pages/pgsczTHjbW0bEak3sO18#fees)). * Borrow rate is fixed. * Good choice if you are longer-term or think the fixed rate is low. * At maturity, your fixed rate auto-converts to a variable rate and your position remains open. ### Selecting leverage Selecting your leverage changes how much you borrow which changes the borrow rate and the total APY. The more leverage you use, the more you borrow. Usually, this means that your total APY goes up. But it can also make your total APY go down if you borrow so much that it spikes your borrow rate. ### Debt / PT Breakdown Once you select your borrow terms and leverage, the Notional UI will show you details about your leveraged PT position:
Here is what each line means: 1. **Borrow amount**. The amount you're borrowing in the deposit token (ex USDC). 2. **Asset amount**. The total amount of tokens in the PT currency (ex USDe) you'll have after converting your deposit and borrowed funds from the deposit token. 3. **USDC Debt at Maturity**. The amount of debt you will owe at the debt maturity date (if borrowing fixed). 4. **USDe at PT Expiration.** The amount of PT currency tokens you will have at the PT expiration. The following calculations help you understand your costs and returns: * **Borrow Interest Paid**: `#3 - #1` — This represents the interest you’ll pay to Notional on your borrowed amount. * **PT Yield Earned**: `#4 - #2` — This represents the yield you’ll earn from the PTs at expiration. Using this information, you can estimate your **net worth at PT expiration** and assess your potential profitability. ### Net worth at PT expiration To estimate your net worth in the deposit token (e.g., USDC) at PT expiration, follow these three steps: **1. Estimate Debt Owed at PT Expiration** Notional's fixed borrow maturities may not align exactly with PT expirations. When your fixed debt matures, it converts to a variable rate, accruing interest until the PT expiration.\ To estimate your total debt at PT expiration: * Assume a variable borrow rate for the period between debt maturity and PT expiry. * Calculate the accrued interest during this period. **Example:** * **Debt Maturity Date**: Dec 12, 2024 * **PT Expiration Date**: Dec 25, 2025 (13 days later) * **Variable Borrow Rate Assumption**: 10% * **Debt at Maturity**: 143,354 USDC **Interest Calculation:**\ `Accrued Interest = 143,354 * 0.1 * (13 / 365) = 511 USDC` **Estimated Debt at PT Expiry:**\ `143,354 + 511 = 143,865 USDC` **2. Convert PT Currency Value at Expiration to Deposit Token** If the PT currency (e.g., USDe) differs from the deposit token (e.g., USDC), you must convert the PT value at expiration into the deposit token. * **PT Currency at Expiry**: 174,638 USDe * **USDe/USDC Exchange Rate**: 1.002 **Conversion Calculation:**\ `PT Value in USDC = 174,638 * 1.002 = 174,987 USDC` **3. Calculate Net Worth at PT Expiration** Subtract your estimated debt from the converted value of the PTs. **Calculation:** * **PT Value in USDC**: 174,987 USDC * **Debt at PT Expiration**: 143,865 USDC **Estimated Net Worth:**\ `174,987 - 143,865 = 31,122 USDC` **Example Summary** In this example, the user deposits **30,000 USDC** and ends up with an estimated net worth of **31,122 USDC** at PT expiration. This equates to a **net profit of 1,122 USDC**! By understanding this breakdown and the key steps, you can confidently assess the profitability of your leveraged PT strategy. ### Understanding Total APY Total APY depends on three things: 1. The PT APY (called Vault Share APY). 2. The APY spread (APY spread = PT APY - borrow APY). 3. The leverage ratio. You can find the calculation on the left-hand side of the page.
## Viewing your position To find your position, go to the leveraged vaults tab on the [portfolio page](https://notional.finance/portfolio/mainnet/overview).
This page will give you detailed information regarding your position, including: 1. Your current APY 2. How much you deposited 3. The current value of your position 4. Your current earnings ### Liquidation price The Notional UI will show you a health factor and a liquidation price for your position.
The liquidation price is in terms of the **PT / deposit token**. This price can decline for two reasons: 1. The PT APY increases. This will cause the PT / PT currency (USDe) exchange rate to decrease. 2. The exchange rate between the PT currency and deposit token (USDe / USDC) decreases. ## Managing your position To manage your position, switch to the default portfolio view and expand the position row. Then click the manage button.
The manage button gives you a few options: * Deposit more * Adjust leverage * Withdraw * Switch borrow terms ### Depositing more * To deposit more, click the button that says Deposit. * This will take you to a transaction page with a deposit input field. * Your borrow terms and leverage ratio will be kept the same as you deposit more. ### Adjusting leverage Adjusting leverage allows you to increase or decrease your leverage **without depositing more tokens or withdrawing from Notional**. Click the adjust leverage button and move the slider to your desired leverage. You can see the impact on your position on the UI:
### Switching borrow terms Switching your borrow terms lets you swap your leverage in one click while keeping your position open. Users might want to do this if a different borrow term gives them a higher total APY. For example, if the variable borrow rate spikes, a user might want to switch from the variable borrow rate to a lower fixed rate in order to protect their total APY. On the manage position menu, you will see one button for each borrow maturity. You will see the Total APY that you would get if you switched your borrow to that maturity.
To switch your borrow terms, just click the button and submit the transaction on the next screen. ## Fees Leveraged PTs have two kinds of fees - trading costs and initial borrow fees. ### Trading cost When you deposit into a leveraged PT strategy, the strategy will convert the deposit token into the PT currency and then buy the PT on Pendle. This causes transaction cost. These costs are combined and shown as "Trading Cost" on the Trade Summary:
If you exit before the PT maturity, you will get both of these costs again. If you exit after the PT has matured, there is no cost for selling the PT on Pendle but you will still get the cost of converting the PT currency back to the deposit token. ### Initial borrow fee Leveraged PT strategies include borrowing, which can include fees. Variable borrowing does not include an upfront fee, but fixed rate borrowing does. Read more about fixed rate borrow fees [here](/notional-v3/product-guides/fixed-rate-borrowing#fees). The Notional UI will show you a detailed breakdown of the borrow fees on the trade summary when you enter or exit your position.
## Liquidation risk Leveraged PTs include liquidation risk. Remember - you're borrowing from Notional and using the borrowed funds to buy a PT. The liquidation price is in terms of the **PT / deposit token (PT / USDC)**. This price can decline for two reasons: 1. The PT APY increases. This will cause the PT / PT currency (PT / USDe) exchange rate to decrease. 2. The exchange rate between the PT currency and deposit token (USDe / USDC) decreases. ## Negative APY risk It's possible for leveraged PT strategies to have a negative Total APY if the borrow rate increases above the PT APY. One way to mitigate this is to use a fixed borrow rate. ## Fixed vs Variable Borrow When you borrow in leveraged PTs, there are two types of borrowing: * **Fixed Rate Borrowing**: This locks in a borrowing rate for the duration of the loan, so you know exactly how much interest you will pay by the time the loan matures. However, if you want to repay the loan early, the current market rate for fixed-rate borrowing comes into play. The amount you will owe may fluctuate based on whether the rate has gone up or down since you first borrowed. This can lead to profit or loss if you exit early. * **Variable Rate Borrowing**: With a variable rate, your interest rate can change block by block, meaning the amount of interest you owe is continuously adjusted based on the market rate. There’s no upfront fee for liquidity providers as the rate is always moving. ### Borrow Interest Accrual on Fixed Rate Loans When you take out a fixed-rate loan, you pay interest on that loan at the agreed-upon rate (e.g., 9.34% per year). The "fixed" part means that no matter what happens to the market rates after you lock in your loan, your interest rate won't change. However, if you want to close your position early, the present fixed rate in the market will impact the amount you owe. For example: Let’s say you borrow 100 ETH at a fixed rate of 5% for one year. If you hold the loan to maturity, you’ll owe exactly 5 ETH in interest. However, if you want to exit early, say after six months, the current fixed rate affects your payoff: * **If rates stay at 5%**: You have held your loan for half the time and will need to pay half the interest upon exit, or 2.5 ETH. * **If rates rise to 8%**: Your debt becomes cheaper. It might cost you only 2.4 ETH to repay instead of 2.5 ETH, meaning you save on interest by exiting early. * **If rates fall to 3%**: Your debt becomes more expensive. It could now cost 2.6 ETH to repay, meaning you’ll pay more to close the position early. That’s why Notional shows you changes in the value of your debt even though you’ve locked in a fixed rate — it affects early repayments. ### Why the Upfront Fee for Fixed Rate Borrowing? The fee you pay upfront for fixed-rate borrowing covers two things: * **Liquidity Provider Fee**: Just like with any other trade in a market, there’s a fee associated with borrowing from a fixed-rate liquidity pool. This fee compensates liquidity providers who enable you to access the fixed rate. * **Vault Fee**: Leveraged strategies often charge an extra fee for the additional complexity and risk involved. This fee is charged upfront for fixed-rate borrowing, while for variable-rate borrowing, it's spread out over time. ### Withdrawal Value Discrepancies for Fixed Rate Positions If you notice a difference between your "Present Value" and the amount displayed on the withdrawal screen, it’s likely due to slippage caused by low fixed rate liquidity. If you have a large debt repayment, the fixed rate can move significantly, resulting in slippage loss. You can estimate the slippage loss using this formula: * **Slippage Loss** = Debt Repayment Amount × Slippage Percent × Year Fraction * Example: If repaying 253 ETH causes a 3.6% slippage over 3 months, slippage loss is approximately 2.27 ETH. (253 \* 0.036 \* 0.25) ## Why Do Earnings Fluctuate? In leveraged PTs, you can **borrow fixed** and **lend fixed**, which introduces additional dynamics to how your position’s "Present Value" changes. Here's why your earnings and present value can fluctuate: * **Market Rate Movements (Borrow Side)**\ While your borrow rate is fixed, the market rate for fixed loans changes. If you close your borrow position before maturity, the value of your debt may differ based on how your locked-in rate compares to the current market rate. * **Market Rate Movements (Lend Side)**\ Similarly, the fixed-rate lend token you hold can fluctuate in value before maturity. Its present value depends on how the market rate for fixed lending shifts relative to the rate at which you locked in. * **Exchange Rate Risk**\ In this strategy, you **borrow in one currency** (ex USDC), **swap to another currency** (ex USDe), and then **lend fixed in that new currency**. This creates **exposure to the exchange rate between the two currencies.** * If the value of USDe depreciates relative to USDC, the value of your lend position decreases when measured in USDC terms. * Conversely, if USDe appreciates relative to USDC, your lend position increases in value. * **Combined Effects**\ With both fixed borrowing, fixed lending, and potential currency exposure, fluctuations in **interest rates** and **exchange rates** interact to influence your Present Value. This creates both **risks and opportunities** depending on market conditions, giving you more levers to optimize your strategy. # Overview The prime money market is Notional’s variable rate lending and borrowing market. The prime money market is similar to other money markets in DeFi like Aave or Compound. Variable rate lenders deposit funds into a pool, and over-collateralized borrowers can borrow from that pool and pay interest to the lenders. The interest rate that the borrowers pay and the lenders earn is based on the pool's utilization. The prime money market uses a unique double-kink interest rate model to optimize for capital efficiency and predictability in borrow rates. ### Prime Cash When users deposit into the prime cash money market, they get prime cash in return. Prime cash is an ERC20 token that represents a lending position in the prime money market. There is a different Prime Cash token for each currency - for example Prime USDC, Prime DAI, and Prime ETH. Prime Cash values always increase and Prime Cash is always redeemable for the underlying unless the prime money market is at 100% utilization. ### Prime Cash Debt Prime Cash Debt represents a variable rate debt position. For example, a USDC borrower would have Prime USDC Debt. Prime Cash Debt increases based on the current variable borrow rate for borrowers in that currency. # Interest Rate Model Notional uses a two kink interest rate model to determine the pre-fee borrow rate. The pre-fee borrow rate is the interest rate that borrowers have to pay before fees are applied. Notional's governance sets the following parameters to determine the shape of the interest rate curve: * Kink1 Interest Rate * Kink2 Interest Rate * Max Interest Rate * Kink1 Utilization Rate * Kink2 Utilization Rate
The pre-fee borrow rate is a function of the prime money market utilization. A market's utilization is defined as the total amount of funds borrowed divided by the total amount of funds supplied. The interest paid by the borrowers according to the pre-fee borrow rate is amortized over the total funds supplied. # Borrow Fees Notional governance sets the following parameters to determine the amount of fees that borrowers pay to the protocol. * Fee rate percent * Max fee rate * Min fee rate Borrower fees are a percentage of the borrow rate calculated by the interest rate curve. This percentage is the fee rate percent. The fee is added on top of the borrow rate pulled from the interest rate curve. For example, if the pre-fee borrow rate is 3% and the fee rate percent is 20%, then the borrow fee will be 0.6% (3% \* 20%). The post-fee borrow rate will then be 3.6% (3% + 0.6%). **Min and max fee rate** The min fee rate and max fee rate set bounds on how big or small the borrow fee can be. For example, with a max fee rate of 1% the borrow fee could never be more than 1% even if the pre-fee borrow rate was 20% and the fee rate percent was 20%. # What is fCash fCash tokens are similar to zero-coupon bonds. They are defined by a currency type and a maturity date. At maturity, fCash can be redeemed on Notional for its currency type. Any time before maturity, fCash can be transferred or traded. For example, December 1st 2021 fDAI is an fCash token. This fCash token is transferable, and tradable. And At maturity (December 1st, 2021), 1 December 1st 2021 fDAI token can be redeemed for 1 DAI on Notional. In other words, fCash tokens represent specific amounts of currency at specific future dates. ### What is fCash good for? fCash is the core innovation that powers fixed rate borrowing and lending on Notional. fCash allows the protocol to keep track of lenders claims on assets in the future and borrowers obligations to repay their debts. Let's use an example from traditional finance - a bond issuance. In a bond issuance, a borrower asks lenders to lend them money. In return, the borrower commits to paying back the debt + a fixed amount of interest at a specific date in the future. In this example, the borrower has a fixed obligation at maturity (debt + interest) and the lender has a fixed asset at maturity (principal + interest). fCash is the tool that allows Notional to define and track these assets and obligations. Positive fCash balances are assets held by lenders, and negative fCash balances are obligations held by borrowers.
# Using fCash ### Fixed rate lending To lend at a fixed rate using fCash, users can swap their cash for fCash on one of Notional's native liquidity pools. The exchange rate at which they trade cash for fCash determines a fixed interest rate over the period of their loan. Here is how to determine the `fCashAmount` you will buy given a `cashAmount`, `interestRate`, and `timeToMaturity`. Here, `timeToMaturity` is measured in years (six months = 0.5, three months = 0.25). $$ fCash Amount = cashAmount \* e^{(interestRate \* timeToMaturity)} $$ And here is how to determine the `interestRate` given a `cashAmount`, `fCashAmount`, and `timeToMaturity`. $$ interestRate = ln(fCashAmount/cashAmount) / timeToMaturity $$ ### Lending example A user wants to lend 100 USDC for six months on Notional, and the interest rate is 5%. Here's how much fCash they will get: ``` cash = 100 interestRate = 0.05 timeToMaturity = 0.5 fCash = 100 * e^(0.05 * 0.5) = 102.53 ``` The user can wait until maturity to claim their 102.53 USDC, or they can choose to exit early by swapping their 102.53 fUSDC for USDC on the liquidity pool. The amount of USDC they get back will depend on the remaining time to maturity and the market interest rate at the time they make the swap. ### Fixed rate borrowing To borrow at a fixed rate using fCash, users can deposit collateral and mint a pair of fCash tokens - a positive fCash token and a negative fCash token. The user will then swap the positive fCash token on one of Notional's liquidity pools in exchange for cash. At the end of the borrow transaction, the user will have collateral, the cash they borrowed, and a negative fCash token that represents their obligation at maturity. ### Borrowing example Let's say you have 1 ETH (valued at $2,000) and you want to borrow 1,000 USDC for six months. To do this you will need to deposit the ETH into Notional and mint 1,000 USDC worth of a six month fCash pair. Then you will swap the positive fCash tokens for 1,000 USDC. Here's how much fCash you would need to mint assuming the interest rate is 5%: ``` cash = 1,000 interestRate = 0.05 timeToMaturity = 0.5 fCash = 1,000 * e^(0.05 * 0.5) = 1,025.32 ``` After you do the swap, your portfolio would look like this: ``` Cash = 1,000 USDC Obligation = -1,025.32 fCash Collateral = 1 ETH LTV = ~50% ``` # fCash Maturity ### Lender settlement When your fCash reaches maturity, it will automatically convert to Prime Cash using the fCash / Prime Cash exchange rate at that time. For example, if you have 100 fDAI and the fDAI / Prime DAI exchange rate at maturity is 0.1 (10 Prime DAI = 1 DAI), then your fDAI would automatically convert into 1,000 Prime DAI and start earning the Prime DAI lending rate. The fCash / Prime Cash exchange rate is stored on Notional for every maturity - this is called the **settlement exchange rate**. All fCash at a maturity convert to Prime Cash at the settlement exchange rate. This means that it doesn't matter if you settle immediately at maturity or if you wait - you will get the same amount of Prime Cash regardless. This is good because it means you don't lose any interest by not settling your position immediately.
In this example, a lender has 100 fDAI that converts into 1,000 Prime DAI at maturity using a settlement exchange rate of 0.1. No matter when they come to settle or claim their cash, they will always get 1,000 Prime DAI. This means that they will always be earning the Prime DAI lending rate after maturity and the DAI value of their Prime DAI will grow. ### Borrower settlement As a borrower, you will have a negative fCash balance at maturity which will convert to Prime Cash Debt at the settlement exchange rate. So if you have -100 fDAI, that will convert into -1,000 Prime DAI Debt at maturity. This means you will owe Notional 1,000 Prime DAI, and the DAI value of your debt will increase at the Prime DAI borrowing rate after maturity. # Transaction Fees When you borrow or lend, you are trading fCash on one of Notional's liquidity pools. The liquidity providers in that pool charge a transaction fee on your trade. The transaction fee is applied to the interest rate of your loan. If you are lending, you will get a slightly lower interest rate and if you are borrowing you will get a slightly higher interest rate. ### Fee rate The transaction fee charged is a percentage of the total interest before the fee is applied. Currently, the fee rate is 8%. So if the pre-fee interest rate is 3.75%, the fee would be 0.3% (3.75% \* 8%). This means that the post-fee lending rate would be 3.45% and the post-fee borrow rate would be 4.05%. ### Lender fee example Here is an example of transaction cost for a lender assuming a 0.3% transaction fee. ``` cash = 1,000 USDC timeToMaturity = 0.5 pre-fee interest rate = 3.75% post-fee interest rate = 3.45% (3.75% - 0.3%) pre-fee fCash = 1000 * e^(0.0375 * 0.5) = 1,018.93 post-fee fCash = 1000 * e^(0.0345 * 0.5) = 1,017.40 total fee = 1.53 fCash ``` In this example, the lender's fee is 1.53 fCash. This means that they will receive 1.53 USDC less in interest at maturity than if there had been no fee. This fee is split between the liquidity providers and the protocol. ### Borrower fee example Here is an example of transaction cost for a borrower assuming a 0.3% transaction fee. ``` cash = 1,000 USDC timeToMaturity = 0.5 pre-fee interest rate = 3.75% post-fee interest rate = 4.05% (3.75% + 0.3%) pre-fee fCash = 1000 * e^(0.0375 * 0.5) = -1,018.93 post-fee fCash = 1000 * e^(0.0405 * 0.5) = -1,020.46 total fee = 1.53 fCash ``` In this example, the lender's fee is 1.53 fCash. This means that they will need to pay 1.53 USDC more in interest at maturity than if there had been no fee. This fee is split between the liquidity providers and the protocol. ### Time to maturity impact The absolute size of the transaction fee for trading fCash will change depending on the time to maturity even though it stays the same in percentage terms. If you are lending for long periods of time, the fee will be higher, and if you are lending for short periods of time the fee will be smaller. For example, consider a lender who is lending for six months vs a lender who is lending for one year. ``` // Lending for six months cash = 1,000 USDC timeToMaturity = 0.5 pre-fee interest rate = 3.75% post-fee interest rate = 3.45% (3.75% - 0.3%) pre-fee fCash = 1000 * e^(0.0375 * 0.5) = 1,018.93 post-fee fCash = 1000 * e^(0.0345 * 0.5) = 1,017.40 total fee = 1.53 fCash // Lending for one year cash = 1,000 USDC timeToMaturity = 1 pre-fee interest rate = 3.75% post-fee interest rate = 3.45% (3.75% - 0.3%) pre-fee fCash = 1000 * e^(0.0375 * 1) = 1,038.21 post-fee fCash = 1000 * e^(0.0345 * 1) = 1,035.10 total fee = 3.11 fCash ``` The lender who is lending for one year pays a fee that is \~2x greater than the lender who is lending for six months even though the transaction fee is 0.3% in both cases. Transaction fees scale linearly with time to maturity. As fCash gets closer to maturity, the fee gets closer and closer to 0. # Exiting Early When you lend at a fixed rate with fCash, you know exactly how much interest you will receive at maturity. But what happens if you exit early? How much interest will you get if you sell your fCash before it matures? To understand what you will get if you exit early, you need to understand how fCash accrues interest. ### fCash interest accrual As you approach maturity, the fCash/cash exchange rate approaches 1. This means that as time goes on, fCash increases in value. Here is how to determine the cash value of fCash given a `fCashAmount`, an `interestRate`, and a `timeToMaturity`. $$ cash = fCashAmount/ e^{interestRate \* timeToMaturity} $$ For example, with interest rates at 5%, 100 fCash is worth more if the time to maturity is six months than if the time to maturity is one year: ``` // 100 fCash value at one year to maturity with 5% interest rate cash = 100 / e^(.05 * 1) = 95.12 // 100 fCash value at six months to maturity with 5% interest rate cash = 100 / e^(.05 * .5) = 97.53 ``` In this example, 100 fCash is worth 2.41 more cash after six months. This extra value is the interest that the fCash has accrued over the six month period. ### Early exit example Let's look at an example that includes transaction cost where a user lends 1000 USDC at 3.75% for one year and then exits after six months with the interest rate unchanged at 3.75%. ``` // Lending 1000 USDC at 3.75% for one year with 0.3% transaction fee fCash = 1000 * e^(.0345 * 1) = 1035.10 fCash // Selling 1035.10 fCash after six months at 3.75% and 0.3% fee cash = 1035.10 / e^(.0405 * 0.5) = 1014.35 ``` In this example, the user has earned 14.35 USDC after six months accounting for fees. ### Impact of fees Users who exit early can lose money if they don't hold their position long enough to cover their transaction cost. For example, here is what would happen if a user lent 1000 USDC for 1 year and then immediately exited on the same day. ``` // Lending 1000 USDC at 3.75% for one year with 0.3% transaction fee fCash = 1000 * e^(.0345 * 1) = 1035.10 fCash // Selling 1035.10 fCash immediately with interest rate at 3.75% and 0.3% fee cash = 1035.10 / e^(.0405 * 1) = 994.02 ``` In this example, the user lost 5.98 USDC because they paid transaction fees on entry and exit without accruing any interest. # Interest Rate Risk The value of fCash changes as interest rates change. This is called **interest rate risk**. As interest rates increase, the cash value of fCash decreases. As interest rates decrease, the cash value of fCash increases. This means that you can make or lose money when you exit fCash before maturity in addition to the amount you earn from interest accrual. For example, here is the value of 100 fCash with six months left to maturity at an interest rate of 5% vs. an interest rate of 8%. ``` // 100 fCash value with six months to maturity at 5% interest rate cash = 100 / e^(0.05 * 0.5) = 97.53 // 100 fCash value with six months to maturity at 8% interest rate cash = 100 / e^(0.08 * 0.5) = 96.08 ``` ### Early exit example Let's look at an example that includes transaction cost where a user lends 1000 USDC at 5% for one year and then exits after six months when the interest rate has decreased to 3%. ``` // Lending 1000 USDC at 5% for one year with 0.4% transaction fee fCash = 1000 * e^(.046 * 1) = 1047.07 fCash // Selling 1047.07 fCash after six months with interest rate at 3% and 0.24% fee cash = 1047.07 / e^(.0324 * 0.5) = 1030.24 ``` In this example, the user has earned 30.24 USDC in six months. This means that they have achieved an APY of \~6.04% even though they initially lent at a fixed rate of 5%! This extra earning on top of their interest accrual comes from the fact that fCash has appreciated in value due to the decrease in interest rates. ### Impact of time to maturity Longer-dated fCash is more sensitive to interest rate changes than shorter-dated fCash. This means that the greater the time to maturity, the more the cash value of fCash will change as interest rates change. Let's look at an example of how much the value of fCash changes when it is has one year until maturity vs. three months to maturity. ``` // 100 one-year fCash value at interest rates of 5% and 8% cash = 100 / e^(0.05 * 1) = 95.12 cash = 100 / e^(0.08 * 1) = 92.31 cash value change = 2.81 // 100 three-month fCash value at interest rates of 5% and 8% cash = 100 / e^(0.05 * 0.25) = 98.76 cash = 100 / e^(0.08 * 0.25) = 98.02 cash value change = 0.74 ``` In this example, the 1 year fCash changed in value \~4x more than the 3 month fCash for the same change in interest rates. Interest rate risk scales linearly with time to maturity. As fCash gets closer to maturity, the amount that its cash value will change due to a change in interest rates gets closer and closer to 0. # Loan to Value (LTV) Notional is an overcollateralized lending protocol. This means that the maximum amount you can borrow is less than the total value of your collateral. \ \ Your Loan to Value (LTV) is the value of your loan in USD divided by the value of your collateral in USD. $$ LTV = loanValue / collateralValue $$ For example, if you borrowed 100 USDC against 200 USDC worth of ETH, your LTV would be 50%. ``` // Example LTV calculation loan value = 100 USDC collateral value = 200 USDC LTV = 100 / 200 = 0.5 ``` ### Max LTV The maximum amount you can borrow against your collateral is called the Max LTV. If the Max LTV was 75%, you could borrow another 50 USDC before you would reach your max borrow capacity. ``` // User at Max LTV of 75% loan value = 150 USDC collateral value = 200 USDC LTV = 150 / 200 = 0.75 ``` Your Max LTV depends on what assets you're using as collateral, what you're borrowing, and Notional's risk parameters. # Health Factor Max LTV is a useful way to examine a specific collateral / debt pair, but it doesn't work when the user has multiple collateral assets or debts. Because of this, we rely on a **Health Factor** to show users how close they are to liquidation. Notional's Health Factor is similar to the health factor that users would see on a different money market like Aave. A user's health factor is the sum of the risk-adjusted value of their collateral assets divided by the sum of the risk-adjusted value of their debts. $$ Health Factor = \frac{\sum riskAdjustedCollateral} { \sum riskAdjustedDebt} $$ The Health Factor is infinity when the user has no debt and it is 1 when the user is at the point of liquidation. If the Health Factor goes below 1, the user can be liquidated. ### Risk adjustments Unlike other lending protocols, Notional has two kinds of risk adjustments - **Asset type** risk adjustments and **exchange rate** risk adjustments. Asset type risk adjustments are applied to an asset depending on its type (Prime Cash, fCash, or nTokens) and exchange rate risk adjustments are applied depending on the asset's currency. Prime Cash and Prime Cash Debt have zero risk adjustment but fCash and nTokens do. This means that your Max LTV and Health Factor will be lower if you are borrowing against nETH as opposed to Prime ETH for example. # Liquidation If a user's health factor drops below 1, they will become eligible for liquidation. When a user gets liquidated, the liquidator can purchase 40% or more of their collateral at a discount. For example, consider a user who has borrowed 1,000 USDC against 1 ETH worth 2,000 USDC for an LTV of 50%. Assume the max LTV is 75% and the liquidation discount is 5%. Here's what will happen if the ETH price falls to 1,300 USDC. ``` // Pre-liquidation Debt: 1,000 USDC Collateral: 1 ETH ETH/USDC price: 1,300 USDC LTV = 1,000 / 1,300 = 0.769 // Liquidation Liquidation discount: 6% Collateral purchased: 0.4 ETH ETH/USDC purchase price = 1,300 * (1 - 0.06) = 1,222 USDC USDC liquidation amount = 1,222 * 0.4 = 488.8 USDC Liquidator profit = 0.4 ETH * 1,300 USDC * 6% = 31.2 USDC // Post-liquidation Debt: 1,000 USDC - 488.8 USDC = 511.2 USDC Collateral: 1 ETH - 0.4 ETH = 0.6 ETH ETH/USDC price: 1,300 USDC LTV = 511.2 / 780 = 0.655 ``` In this example, the liquidated account is returned to a healthy LTV of 0.655 and the liquidator earns a profit of 31.2 USDC. ## Liquidation discount The size of the liquidation discount is the sum of two parts: 1. **The exchange rate discount**. This discount depends on what currency the user is borrowing and what currency they're using as collateral. This discount is larger for volatile pairs and smaller for stable pairs. 2. **The collateral asset type discount**. This discount depends on whether the user is holding their collateral as prime cash, nTokens, or fCash. For prime cash, this discount is 0%. But for nTokens and fCash it will be positive and vary by currency. $$ liquidation Discount = exchangeRateDiscount + collateralAssetTypeDiscount $$ ### Exchange rate discount Each currency has its own liquidation discount. For example, the ETH liquidation discount is 6% and the USDC liquidation discount is 4%. The discount that will be used in liquidation is the greater of the collateral asset discount and debt asset discount. $$ exchangeRateDiscount = max(collateral.discount, debt.discount) $$ ### Collateral asset type discount * **Prime cash**: zero additional discount. * **fCash**: fCash collateral asset type discounts work similarly to [fCash haircuts](broken://pages/K0Z5DXvd51F0SbHcDNnJ#fcash). They are not flat percentages - they are discounts based on adjustments to the oracle rate. This means that liquidation discounts vary in size depending on the time to maturity of the fCash asset. * **nTokens**: nTokens have a flat discount percentage that varies by currency. For example, nETH has a 2% collateral asset type discount. ### Example calculations Here are some example liquidation discount calculations for users with different portfolios. **Example 1: prime ETH collateral vs. fUSDC debt** ``` Collateral currency: ETH Debt currency: USDC Collateral asset type: prime cash ETH discount: 6% USDC discount: 4% Prime cash discount: 0% Liquidation discount = max(4%, 6%) + 0% = 6% ``` #### Example 2: fETH collateral vs. fUSDC debt ``` Collateral currency: ETH Debt currency: USDC Collateral asset type: fETH fETH time to maturity: 0.5 years fETH liquidation haircut: 1% fETH discount ~= 0.5% ETH discount: 6% USDC discount: 4% fETH discount: 0.5% Liquidation discount = max(4%, 6%) + 0.5% = 6.5% ``` #### Example 3: nETH collateral vs. fUSDC debt ``` Collateral currency: ETH Debt currency: USDC Collateral asset type: nETH ETH discount: 6% USDC discount: 4% nETH discount: 2% Liquidation discount = max(4%, 6%) + 2% = 8% ``` ### Single-currency liquidation discounts Some accounts have debts that are in the same currency as their collateral. For example, a user might have a prime USDC debt against nUSDC collateral. In these scenarios, the liquidators will not receive an exchange rate discount. This means that the only liquidation discount for single-currency liquidations is the collateral asset type discount. #### Example: nUSDC collateral vs. Prime USDC debt ``` Collateral currency: USDC Debt currency: USDC Collateral asset type: nUSDC nUSDC discount: 3% Liquidation discount = 0% + 3% = 3% ``` # Max LTV Table Max LTVs are useful for comparing Notional to other lending protocols for specific collateral and asset pairs. You can find a table of Max LTVs on [this spreadsheet](https://docs.google.com/spreadsheets/d/1Dm6dN5nXqJWhDAV3k313OT3bjqbwQ9qTJ2noq1xJRi0/edit?usp=sharing). **NOTE** - this only applies to users who are lending their collateral at a variable rate and borrowing at a variable rate. If you are lending or borrowing at fixed rates, or if you are using nTokens as collateral, your Max LTV will be slightly less than what this table shows. # What are Fixed Rate Liquidity Pools When you lend or borrow at a fixed rate, you are trading fCash on Notional's native liquidity pools. Liquidity providers in the pool act as counterparty to all lending and borrowing by end users. A Notional liquidity pool holds Prime Cash and fCash (Prime DAI and fDAI, for example). Every liquidity pool is specific to a maturity: a Dec 1 2021 liquidity pool holds Dec 1 2021 fCash. ![](/files/-Mf0F2NlX2E0fhV8vk39) ### Liquidity pool participants Three user types interact with Notional liquidity pools: lenders, borrowers, and liquidity providers. Lenders deposit Prime DAI into the pool and receive fDAI (a promise to **receive** a fixed amount of DAI at a future date). Borrowers take Prime DAI from the pool and deposit fDAI (a promise to **pay** a fixed amount of DAI at a future date). The liquidity provider adds Prime DAI and Dec 1 2021 fDAI into the pool which can be lent or borrowed by either party. ![](/files/-MfKPizWILHrStwWO4Uc) ### Trading on liquidity pools The interest rate that borrowers and lenders get depends on the proportion of Prime Cash in the liquidity pool vs. fCash. The more Prime Cash in the pool, the lower the interest rate. The more fCash in the pool, the higher the interest rate. The interest rate is determined by Notional's AMM. As users lend and borrow, they change the liquidity pool's proportion. When users lend, they put in Prime Cash and take out of fCash. When users borrow, they put in fCash and take out Prime Cash. This makes the interest rates on Notional reactive to the balance in supply and demand for borrowing vs. lending. The more users lend, the lower the interest rates go and the more users borrow, the higher interest rates go. # Fixed Rate Liquidity Pool Mechanics Liquidity providers deposit Prime Cash and fCash into liquidity pools and act as counterparty to the lenders and borrowers on that liquidity pool. In exchange for enabling end users to lend and borrow, the liquidity provider earns interest on their assets in the liquidity pool + fees every time a user lends or borrows. ### Liquidity Tokens When an LP deposits into a liquidity pool, they receive liquidity tokens. Liquidity tokens are an asset that represents a proportional share of the total Prime Cash and fCash in the liquidity pool. Liquidity tokens are redeemable for their share of the pool's Prime Cash and fCash at any time.
### Providing liquidity To deposit into a liquidity pool, the LP will specify how much Prime Cash they want to deposit and then the fCash amount can be calculated from the liquidity pool's Prime Cash/fCash proportion. In order to provide the fCash to the liquidity pool, the LP will mint a pair of positive and negative fCash tokens. The LP will then put the Prime Cash + positive fCash into the pool and keep the negative fCash in their portfolio. This allows the LP to provide liquidity to the pool without having to buy fCash. For example, to provide 100 DAI in liquidity to a liquidity pool that is 50% Prime DAI and 50% fDAI, the LP would need to mint a pair of +100 fDAI and -100 fDAI. The LP would then convert their DAI into Prime DAI, and put the Prime DAI + fDAI into the liquidity pool in exchange for liquidity tokens. This would leave the LP with -100 fDAI + liquidity tokens. # What are nTokens nTokens automate the liquidity provision process for LPs and remove the need for LPs to deposit into individual liquidity pools. nTokens are a simple and easy way to earn returns across all fixed rate liquidity pools in a given currency passively. nTokens are ERC20 assets that represent a share of Notional's total liquidity in a particular currency across all active maturities. For example, if you have nDAI, it means you have a share of Notional's total liquidity in DAI across all DAI fixed rate liquidity pools. Every currency on Notional which has fixed rate lending and borrowing enabled has an nToken. nTokens are also versatile. You can redeem or transfer them at any time without restrictions. Additionally, you can use nTokens as collateral on Notional. This means you can earn yield via nTokens in one currency and borrow against your nTokens in a different currency.
Attributes V1V2/V3Remarks
Currency SelectionManualManualUSDC, DAI, ETH etc
Pool Maturity SelectionManual Auto3 Months, 6 Months, 1 Year
Auto Rolling of LiquidityNoYesnTokens don't mature
ParticipationActivePassivenTokens are fully passive
Additional IncentivesNoYesnTokens earn NOTE incentives
Risk Diversification No YesnTokens provide liquidity on all maturities
# nToken Mechanics ## nToken Overview nTokens are like a portfolio manager for liquidity providers. Instead of needing to provide liquidity directly to individual liquidity pools and roll positions when they mature, the nToken handles everything on behalf of Notional LPs. To mint nTokens, a user deposits cash into the nToken account. The nToken account then distributes the user's liquidity into the underlying fixed rate liquidity pools for that currency and holds the liquidity tokens that it gets back. ![](/files/-Me7OzNEjSv-9CSZLfXJ) The nToken account divides liquidity between individual markets based on governance parameters called **deposit shares**. ### Deposit shares Deposit shares are percentage figures that tell the nToken account how much of a user's total liquidity to deposit into each individual market. Deposit shares allow Notional governors to direct liquidity to the maturities where there is the greatest end-user demand for borrowing and lending. For example, governors may decide on a set of deposit shares which would direct more liquidity to long-dated maturities and less liquidity to short-dated maturities, or vice versa depending on relative demand. ### Depositing into liquidity pools The nToken account provides liquidity to an individual liquidity pool in the [same way as any other account](/notional-v3/fixed-rate-liquidity-pools/fixed-rate-liquidity-pool-mechanics). The nToken account mints a pair of offsetting fCash tokens, places the Prime Cash along with the positive fCash into the liquidity pool in exchange for liquidity tokens, and holds the negative fCash alongside the liquidity tokens in its portfolio. From the [LP mechanics section](/notional-v3/fixed-rate-liquidity-pools/fixed-rate-liquidity-pool-mechanics#providing-liquidity): > For example, to provide 100 DAI in liquidity to a liquidity pool that is 50% cDAI and 50% fDAI, the LP would need to mint a pair of +100 fDAI and -100 fDAI. The LP would then convert their DAI into Prime DAI, and put the Prime DAI + fDAI into the liquidity pool in exchange for liquidity tokens. > > This would leave the LP with -100 fDAI + liquidity tokens. At any time, the nToken account will hold Prime Cash, fCash, and liquidity tokens from different liquidity pools. # nToken Portfolio ### Basic structure The nToken's portfolio holds a Prime Cash balance, liquidity tokens at each maturity, and an fCash debt at each maturity. Each nToken holds a proportional claim on all the assets in the nToken's portfolio. If there are 10,000 total nTokens and one user holds 1,000 nTokens, that user has a claim on 10% of the liquidity tokens and 10% of the fCash debt in the nToken portfolio. Here is an example nToken portfolio ignoring its Prime Cash balance: | **Maturity** | **Liquidity Tokens** | **fCash Debt** | | --------------- | -------------------- | -------------- | | March 1 2022 | +200 | -200 | | June 1 2022 | +300 | -300 | | December 1 2022 | +500 | -500 | ### Net fCash A net fCash position is when the fCash sitting in a liquidity pool doesn't perfectly offset the fCash debt in the nToken's portfolio. As users trade on the liquidity pools, nTokens can develop large net fCash positions if most of the trades are the same direction. nToken's net fCash positions come from the liquidity tokens in the nToken portfolio. Liquidity tokens are freely redeemable for the Prime Cash and fCash sitting in the liquidity pools. To illustrate how nTokens develop net fCash positions, let's see what the example portfolio above would look like if we redeemed those liquidity tokens and assumed that each liquidity token has a claim on 1 Prime Cash and 1 fCash. | **Maturity** | **Prime Cash Claim** | **fCash Claim** | **fCash Debt** | | --------------- | -------------------- | --------------- | -------------- | | March 1 2022 | +200 | +200 | -200 | | June 1 2022 | +300 | +300 | -300 | | December 1 2022 | +500 | +500 | -500 | In this example, the positive fCash claim from the liquidity tokens would offset the negative fCash debt in each maturity. So we can calculate the net fCash in a maturity as the sum of the fCash claim and the fCash debt.
MaturityPrime Cash ClaimfCash ClaimfCashNet fCash
March 2022+200+200-2000
June 2022+300+300-3000
December 2022+500+500-5000
### Net fCash changes When end users lend and borrow they change the amount of Prime Cash and fCash claims of the nToken's liquidity tokens and give the nToken net fCash positions. For example, consider if a user borrowed 100 Prime Cash from the March liquidity pool in exchange for 105 fCash. The liquidity tokens would have a claim on 100 fewer Prime Cash and 105 more fCash. Here is what the March maturity part of the nToken portfolio would look like after this trade.
MaturityPrime Cash ClaimfCash ClaimfCashNet fCash
March 2022+100+305-200+105
The nToken now has a net fCash position of +105 in the March 2022 maturity. In other words, the nToken is now a **lender** in this maturity. The same thing can occur in the other direction. Now imagine that a second user came in to lend 200 Prime Cash in exchange for purchasing 208 fCash from the March liquidity pool. The liquidity tokens would now have a claim on 300 Prime Cash and only 97 fCash.
MaturityPrime Cash ClaimfCash ClaimfCashNet fCash
March 2022+300+97-200-103
The nToken now has a net fCash position of -103 in the March 2022 maturity. In other words, the nToken is now a net **borrower** in this maturity. The nToken's net fCash positions reflect the aggregate activity of all end users on Notional in that currency. When the nToken has significant net fCash positions it means that end user activity has been skewed in one direction. # Minting nTokens When a user mints nTokens, they deposit cash into the nToken account and the nToken distributes their liquidity to the individual liquidity pools. Here is a step-by-step flow of minting nTokens. 1. A user deposits cash (in this example, DAI) into the nToken account.
2. To provide liquidity, the nToken account needs to mint fCash for each liquidity pool and deposit it in the proper proportion. The second step is for the nToken to fetch the proportion data from the liquidity pools
3. Based on the proportion data fetched from the liquidity pools, the nToken mints the fCash pair for each maturity. Find background on how this process works [here](/notional-v3/fixed-rate-liquidity-pools/fixed-rate-liquidity-pool-mechanics).
4. The nToken allocates the cash and fCash to the different liquidity pools based on the deposit shares.
5. The nToken receives liquidity tokens in exchange for the liquidity provided to the pools.
6. Lastly, Notional mints nTokens and gives them to the user.
# Redeeming nTokens nTokens are always redeemable for a proportional share of the assets in the nToken account, including Prime Cash and fCash. But usually, users don't want the fCash when they redeem. They want to redeem directly to underlying. To do this, users will redeem their nTokens, get their share of the fCash, and then sell that fCash on the liquidity pools to convert fully to cash. The Notional UI does all this for the user in a single transaction. Here is a detailed flow of redeeming nTokens directly to cash. 1. When a user redeems the nToken portfolio will hold liquidity tokens and negative fCash. The first step to redeeming is for the user to give up their nTokens.
2. The nToken account then redeems a proportional share of its liquidity tokens.
3. When the nToken account redeems its liquidity tokens, it will receive cash and fCash.
4. The amount of fCash the nToken pulls out of the liquidity pools is almost always different than a proportional amount of the negative fCash position it started with because interest rates will have moved and shifted the proportion of cash to fCash in the liquidity pools. This means that the user has a claim on a net fCash position that can be positive or negative.
5. To redeem down to underlying, the user needs to trade this net fCash on the liquidity pool. If the net fCash position is positive, the user will receive more cash. If it's negative the user will get less cash.
6. Now Notional has converted all of the users assets to cash and returns that cash to their wallet.
# nToken Returns nTokens provide all the liquidity to Notional's liquidity pools. This means that nTokens are the counterparty to all fixed rate lends and borrows on Notional's liquidity pools. When a user borrows fixed, nTokens lend fixed. When a user lends fixed, nTokens borrow fixed. In return for providing liquidity to Notional's fixed rate liquidity pools, nTokens earn returns in three ways: * **Interest accrual:** nTokens hold their cash in Prime Cash, and they earn interest from their Prime Cash. nTokens also hold fCash positions which earn interest if the fCash position is positive, or pay interest if the position is negative. * **Transaction Fees:** nTokens [earn a fee](/notional-v3/trading-fcash/transaction-fees) anytime an end user borrows or lends. Transaction fee returns are driven by volume - the more borrowing and lending, the more fees generated. * **NOTE Incentives:** nToken holders are directly incentivized with Notional’s governance token, the NOTE. nToken holders accrue NOTE rewards proportional to their share of the total nTokens. ### Returns example Here is an example breakdown of return drivers for nUSDC.
In this example, most of the nUSDC cash is held in Prime USDC which is earning 1.44% APY. nUSDC also has net fCash positions in each maturity. It has a net lending position in the March maturity earning 4.981%, and it has small net borrowing positions in June and December. The total interest accrual APY in this example is 2.077%. Trading fees are earning 0.201% APY and NOTE incentives are earning 15.354% APY. # nToken Risks ### Main Risks Users who mint nTokens have four main risks: * **Smart contract risk:** A hack of Notional's smart contracts or the smart contracts of a protocol where Notional has funds could lead to a loss of user funds. * **Bad debt risk:** A borrower insolvency on Notional due to a liquidation failure could lead to a loss of funds. * **Interest rate risk:** nTokens hold fCash positions. As fCash interest rates change, [the value of these fCash positions can change](/notional-v3/trading-fcash/interest-rate-risk). * **Redemption risk:** nTokens can always be redeemed for a proportional share of their prime cash and fCash assets. But during times of high utilization, users can temporarily be unable to redeem nTokens 100% to prime cash. ### Minting cost There is no fee to mint nTokens. ### Redemption cost nTokens can always be redeemed for a proportional share of their Prime Cash and fCash assets at no cost. But if users want to redeem 100% to Prime Cash (because they want to withdraw), they may pay a fee. In order to redeem 100% to Prime Cash, Notional will need to sell the user's share of the fCash assets on Notional's liquidity pools to convert them to Prime Cash. These trades are handled for the user by the UI and incur the [normal transaction cost](/notional-v3/trading-fcash/transaction-fees) for trading on a liquidity pool. The size of the fee depends on the utilization of Notional's liquidity pools. The larger the nTokens's fCash position, the larger the fee. # What are Leveraged Vaults Leveraged vaults are whitelisted smart contracts external to the Notional system that execute pre-determined strategies under specific constraints that mitigate risk to the Notional protocol and its users. Leveraged vaults may execute Notional-specific strategies or strategies that involve interacting with one or more external protocols like Curve, Balancer, or Uniswap. The purpose of the leveraged vault framework is to allow users to get highly levered exposure to the returns of a particular strategy. Notional achieves this by recognizing the assets in a strategy vault as collateral against the user's debt. ### Leveraged vault example For example, consider a vault that allows a user to get up to 10X levered exposure to providing liquidity on the Balancer boosted stablecoin pool. A user could bring 100,000 USDC to Notional, borrow 700,000 USDC from Notional, and then deposit the total 800,000 USDC into the leveraged vault. This user would earn the returns of the vault on 800,000 USDC and pay Notional's fixed interest rate on 700,000 USDC, all while only holding 100,000 USDC in initial capital. If the returns to the vault exceed the interest rate the user pays on their Notional debt, this strategy will be quite lucrative. And from Notional's perspective, the user's debt is still overcollateralized - they hold 800,000 USDC in assets against a 700,000 USDC debt. If the value of the user's assets in the vault fall below a minimum collateralization ratio, they can be liquidated and the strategy will be unwound. # Entering and Exiting a Vault ### Entry To enter a vault, a user will select the maturity that they want to borrow from, the amount they want to borrow, and the amount they want to deposit. Notional will take the user's deposit, borrow the extra cash from the specified liquidity pool, and deposit the total funds in the vault. The Notional vault controller will record the user's debt and their share of the assets in the vault.
### Exit Users can exit a vault at any time. Notional will redeem the user's vault shares, pay off their debt by lending to the specified liquidity pool at the current market rate, and return the excess capital to the user.
If the user borrows at a fixed rate, their debt will be converted to a variable rate at maturity and their position will stay open. ### Rolling your position Users can convert variable rate leveraged vault positions to fixed rate vault positions or vice versa (or even from fixed rates in one maturity to fixed rates in another maturity). The only difference a user experiences when rolling a levered vault debt compared to a normal debt is that **the user must roll their entire debt in one transaction** - users can't roll a strategy vault position over multiple transactions. # Liquidation ### Leverage ratios Every strategy vault enforces a maximum leverage ratio and every user has a leverage ratio that is a function of the value of their assets and the value of their debt. If the value of a user's assets falls and their leverage ratio breaches the max ratio, they can be liquidated. The leverage ratio is calculated as the difference between the user's vaultShareValue (their total assets) and their debt, divided by the value of their debt. $$ leverage { \ } ratio = \frac{vaultShareValue - debt}{debt} $$ By this metric, the closer to 0 the leverage ratio is, the riskier the position. Upon liquidation, a user's leverage ratio will increase and their position will become less risky. ### Liquidation mechanics In the event of liquidation, a liquidator can purchase a portion of the user's vaultShares at a discount to their value for cash that is used to pay down the user's debt. Economic liquidation details are determined by the following variables that are set on a per-vault basis: * **Maximum leverage ratio:** This is the leverage ratio that will trigger a liquidation upon breach. * **Target leverage ratio:** The target leverage ratio is lower (less risky) than the maximum leverage ratio, and is used within the liquidation function to determine how much of a user's vaultShares the liquidator is eligible to purchase. * **Liquidation bonus:** The bonus that the liquidator receives during liquidation. * **Minimum debt size:** The minimum amount of debt a user can hold. No liquidation can bring an account below the minimum debt size unless the liquidation fully zeroes out the user's debt. ### Example liquidation Consider the following vault and account: * Maximum leverage ratio: 0.2 * Target leverage ratio: 0.4 * Liquidation bonus: 5% * Minimum debt size: 50,000 USDC * Value per vaultShare: 1 USDC * Account vaultShares: 590,000 * Account debt: 500,000 USDC * Account leverage ratio: 0.18 This account is over-levered and eligible for liquidation. The max amount of vaultShares that the liquidator can purchase (math obscured for simplicity) is 330,000 for a price of 314,285 USDC. This liquidation will return the account to the target leverage ratio of 0.4 and it will leave the account with a debt of 185,715 USDC so the account will not be in violation of the minimum debt size. To illustrate how the minimum debt size comes into play during liquidations, let's consider that the account instead held 59,000 vaultShares vs 50,000 USDC debt. In this case, returning the account to a leverage ratio of 0.4 would leave it with a debt of only 18,571 USDC. This amount is below the minimum debt threshold. In this case, the liquidator would be required to zero out the account's debt completely. So the liquidator would be allowed to purchase 52,500 vault shares for 50,000 USDC, leaving the liquidated account with 6,500 vaultShares and no debt. # Settlement If a user is using a leveraged vault with fixed rate debt, their fixed rate debt will automatically convert to variable rate debt at maturity and their vault position will stay open. The user can roll their debt back to fixed at any time they like. # Vault Returns ### Return overview Strategy vault returns depend on the amount of initial capital the user contributes, the amount of debt they take on, the returns of the vault, and the rate they pay on their debt. $$ return = \frac{(initialCapital + debt) { } \* vaultReturn { }- debt { } \* interestRate}{initialCapital} $$ If the returns to the vault exceed the rate the user pays on their debt, strategy vaults are highly profitable. Let's use the example of a 5X strategy vault and step through the return calculation assuming that the vault returned 8% over the term while the user paid a fixed 5% interest rate on their debt. $$ return = \frac{(100 + 500) { } \* 8%- 500 { } \* 5%}{100} $$ $$ return = \frac{2300%}{100} $$ $$ return = 23% $$ ### ​Transaction costs Some vaults, but not all, will incur transaction costs when users enter or exit the vault. To properly calculate their expected returns, users need to factor in the impact of any transaction fees. Leveraged vaults may incur transaction costs if they need to trade between the primary borrow currency and another asset upon entering or exiting the strategy. An example of this would be a vault that borrows ETH from Notional and then converts that ETH into stETH. When the user enters this vault they would pay the cost of converting their ETH into stETH, and they would pay the cost of converting stETH back into ETH upon exiting the vault. ### Transaction cost example To illustrate this impact let's examine the potential returns of a simple vault that allows a user to borrow ETH and convert it to stETH with 5X leverage. Let's assume that the user can borrow ETH on Notional at 2% fixed, that stETH yields 4% over the three month term with no exchange rate fluctuations, and that the fee for trading between ETH and stETH is 0.05%. Assume that the user has put in 100 ETH of initial capital and borrowed 500 ETH on Notional. Without accounting for transaction costs and using the formula from above, the user's return would be 14% APY. But upon entering and exiting the vault, the user needs to convert 600 ETH to stETH and vice versa. With a 0.05% trading fee, entry and exit each impose a flat fee of 0.3 ETH, or 0.3% of the user's initial capital. Annualizing these transaction costs will depend on how long the user stays in the vault. If the user stays in the vault for three months, these fees would equate to -2.4% APY which would bring the overall figure down from 14% APY to 11.6% APY. # Vault Risks Leveraged vaults expose Notional's funds to two risks: smart contract risk and economic risk. This page describes these risks and outlines the steps that Notional takes to mitigate them. **Smart contract risk** Leveraged vaults hold user funds and generally deploy them onto one or more external protocols. Smart contract hacks of external, integrated protocols or of leveraged vault code itself can potentially result in lost funds. We mitigate this risk with these measures: * External protocols must receive multiple audits from qualified firms. * External protocols must be live, hold significant TVL, use strong security practices, and maintain open lines of communication with the Notional community. * Strategy code must be audited by a qualified firm. * Strategy code must be reviewed and audited by the Notional core team. * Notional governance will place caps on exposure to different protocols and leveraged vaults **Economic risk** Leveraged vaults borrow funds from Notional in one currency and invest them into a strategy. In general the strategy will involve some amount of risk, meaning that the assets in the leveraged vault could decline in value. If the value of the assets in the vault falls too low, the vault is at risk of becoming insolvent. Notional mitigates insolvency risk by liquidating leveraged vault users if their position breaches some maximum leverage threshold. Notional ensures that liquidations will successfully protect Notional’s funds with these measures: * For vaults where price risk could result in vault insolvency, assets in the vault must be readily liquidatable. * For vaults that involve trading the borrowed currency into a different currency, there must be deep on-chain liquidity for the relevant trading pairs. All assets in the vault must be convertible to the borrowed currency with less slippage than the liquidation discount. * The vault must be able to respond to changing on-chain liquidity levels in real time. If on-chain liquidity deteriorates such that the vault is no longer safely liquidatable, the vault must redeem its assets back to the borrowed currency until it has sufficiently decreased its exposure. * Notional governance sets minimum borrow amounts per account to ensure that liquidations will be profitable and occur in a timely fashion. # Vault FAQs ### What are the risks as a user? ***Price Risk:*** Consider a strategy that borrows one stablecoin (USDC) for another (DAI) to take advantage of rate differentials. The strategy is subject to exchange rate risk as the DAI/USDC peg could potentially break. If DAI depreciates in value against USDC, the vault's assets (DAI-denominated) would deteriorate in value relative to its debt (USDC-denominated). If the DAI/USDC exchange rate falls too far, users could become over-leveraged and eligible for liquidation. ***Smart Contract Risk:*** Any DeFi protocol has some amount of smart contract risk - leveraged vaults are no exception, and can involve multiple protocols, eg. a DEX for swapping tokens, Maker for DAI strategies, etc. A smart contract hack could place vault assets at risk. ***Liquidity Risks:*** If the DAI/USDC on-chain liquidity was to decrease substantially, it could lead users to incur a large amount of slippage when exiting the vault and redeeming their DAI for USDC. *For a full discussion on the risks associated with each strategy,* [*click here*](https://docs.notional.finance/leveraged-vaults/leveraged-vaults/balancer-boosted-stablecoin-pool)*.* ### What are the risks to the protocol / the protocol’s lenders? Leveraged vaults expose Notional's funds to two risks: smart contract risk and economic risk. ***Smart contract risk:*** Leveraged vaults hold user funds and generally deploy them onto one or more external protocols. Smart contract hacks of external, integrated protocols or of leveraged vault code itself can potentially result in lost funds. ***Economic risk:*** Vaults borrow funds from Notional in one currency and invest them into a whitelisted strategy, but the assets in the leveraged vault could decline in value. If the value of the assets in the vault falls too low, the vault is at risk of becoming insolvent, and in need of liquidation. Thus, assets used in leveraged vaults strategies must have deep liquidity and be readily liquidatable, while the vault must be able to respond in real-time to on-chain liquidity levels. Accounts will also have a minimum borrow amount to ensure liquidations are profitable. *For a full discussion on how these risks are actively mitigated* [*click here*](https://docs.notional.finance/notional-v2/leveraged-vaults/vault-risks)*.* ### How is this different from leveraged yield farming (Alpha Homora, Alpaca, Impermax, etc.) Leveraged yield farming protocols like Alpha Homora allow you to provide liquidity on Uniswap V2 forks in highly volatile pairs (ETH/SUSHI for example) and then borrow against those LP tokens to provide more liquidity. This strategy is extremely risky due both to the significant impermanent loss that these LP tokens can sustain and the volatile borrowing rates that users pay on these platforms. The volatility of the strategies offered by leveraged yield farming protocols makes them generally unsuitable for users who want more stable and consistent returns on their capital. In contrast, Notional’s initial leveraged vault strategies are much less volatile and give users highly leveraged exposure to stable, and consistently high-returning strategies. Notional may introduce more volatile leveraged vault strategies in the future, but at the moment the protocol’s vault offering is focused on more stable and consistent strategies. ### How do you choose the strategies listed? What are the criteria? If you have a strategy you’d like to see listed, or would like to propose an integration strategy with your protocol, please reach out to @kyleplong on TG or join the [Discord](https://discord.notional.finance) community. Please keep in mind that to adequately protect users, new strategies will be rigorously vetted with a potentially lengthy process with the following qualifications: * External protocols must receive multiple audits from qualified auditors. * External protocols must be live, hold significant TVL, use strong security practices, and maintain open lines of communication with the Notional community. * Strategy code must be audited by a qualified auditor. * Strategy code must be reviewed and audited by the Notional core team. ### Why are leveraged vaults more capital efficient for users? Leveraged vaults allow users to take out up to 20x leverage for certain strategies. This means that users are effectively able to earn the returns of a strategy on multiples of their initial capital. If the strategy returns stay above the fixed borrowing costs, and no liquidation thresholds are breached, users will greatly boost their returns. ### What’s an example of why a position could get liquidated? If a user's leverage ratio is ever higher than the vault's maximum leverage ratio, the account would become eligible for liquidation. While the strategies are designed to maximize stability, the debt ratio could fall due to any of the aforementioned risks associated with the particular leveraged vault strategies. ### Is this an un/undercollateralized position? No - While leveraged vaults allow for users to gain up to 20x leverage on their initial capital*, **all of the assets*** are locked into the vault and eligible for liquidation if the leverage ratio threshold is crossed. Notional’s rigorous and competitive liquidation infrastructure will be applied to leveraged vault users as well, and all accounts will remain overcollateralized. ### What is the minimum borrow size? Why? The minimum borrow size ensures that in the event an account falls below the required leverage ratio threshold, liquidators are properly incentivized to unwind the position. Because the vault strategies are complex and may involve several other protocols/dex, etc. the gas costs for liquidating accounts may be relatively high. Minimum borrow sizes will be reassessed on a regular basis to ensure the safety of the protocol. ### What happens at maturity? Can I extend the duration of my vaults? If you wait until after your fixed rate debt matures, your debt will be automatically converted into variable rate debt. To roll, you simply select the maturity to extend to, and Notional will borrow from that maturity and then use the borrowed cash to pay off the debt at the initial maturity. The only difference a user experiences when rolling a levered vault debt compared to a normal debt is that you **must roll their entire debt in one transaction.** ### Can I exit early? Yes! Users can exit a vault at any time, either before or after their debt matures. If the user exits prior to the maturity of their debt, Notional will redeem the user's vault shares, pay off their debt by lending to the specified liquidity pool at the current market rate, and return the excess capital to the user. ### What do I need to do while I have an open position? Monitoring the leverage ratio of your portfolio and being aware of maturity dates are the main things to be concerned with. Because the entire strategy’s assets are liquidatable collateral, it is in the user’s best interest to ensure that the asset’s value does not fall too far and put the account in danger of liquidation. For more information on liquidations, [click here.](https://docs.notional.finance/notional-v2/leveraged-vaults/liquidation) ### Can I use multiple vaults at the same time? Yes! Although leveraged vaults will launch in beta with capped investment allocations, you may allocate resources into as many vaults as you wish as long as there is available capacity. ### What collateral types can I use? Certain strategies will have specific requirements for the initial collateral brought by the user. Please see the individual leveraged vault strategy page for exact requirements. ### What are the fees associated with using leveraged vaults? Users pay a fee to use a leveraged vault that varies by the vault. The fee is assessed on the interest rate that the user pays on their debt when they enter the vault and it is split between nToken holders and the protocol's reserve. Some vaults, but not all, will incur transaction costs when users enter or exit the vault, or during vault settlement. To properly calculate their expected returns, users need to factor in the impact of any transaction fees. Strategy vaults may incur transaction costs if they need to trade between the primary borrow currency and another asset upon entering, exiting, or settling the vault. ### What price do I pay for getting liquidated? In the event an account becomes over-leveraged, a liquidator can purchase a portion of the user's vaultShares at a discount to their value for cash, which is then used to pay down the user's debt. The liquidation discount will vary by the strategy. Liquidators cannot liquidate an account past the target leverage ratio for the given strategy, however, they may liquidate the user’s entire debt if liquidation drops the user below the minimum debt threshold. # NOTE NOTE is an [ERC-20](https://github.com/ethereum/EIPs/blob/master/EIPS/eip-20.md) token that governs the Notional protocol. NOTE holders can propose, vote on, and implement changes to Notional system parameters and smart contracts. Each NOTE holder gets one vote per NOTE that they hold. ### Contract Addresses Ethereum: 0xCFEAead4947f0705A14ec42aC3D44129E1Ef3eD5 Arbitrum: 0x019bE259BC299F3F653688c7655C87F998Bc7bC1 ### NOTE Holder Responsibilities NOTE holders will be responsible for managing the Notional on-chain treasury, setting risk and collateralization parameters, and voting on any proposed upgrades to the Notional smart contracts. Here is a short, non-exhaustive list of things NOTE holders will need to propose and vote on: * Setting liquidity fees * Setting collateral haircuts * Onboarding new collateral types * Activating new maturities for lending and borrowing different assets * Determining liquidity incentive emission rates for different currencies * Proposing and evaluating upgrades to the protocol ### Voting and Delegation Currently NOTE voting is done via [Snapshot](https://snapshot.org/#/notional.eth), for more on Governance visit the [Notional governance forum](https://forum.notional.finance/). # NOTE Staking Staked NOTE (sNOTE) gives NOTE holders the opportunity to earn yield on their NOTE while contributing to the security of the Notional protocol and providing liquidity for the NOTE token. ### Staking NOTE In order to stake NOTE, users convert their NOTE into 80/20 NOTE/WETH Balancer LP tokens and receive sNOTE in return. ![](/files/5Q3rT5kB2Ev9yByF9y6B) sNOTE is redeemable at any time for a proportional share of the LP tokens in the pool. As the pool accrues rewards, each sNOTE is redeemable for an ever-increasing number of LP tokens. ### sNOTE Rewards sNOTE rewards accrue in the form of Balancer LP tokens. This means that, absent any sNOTE redemptions, the sNOTE pool will hold an increasing number of LP tokens. As the pool accrues rewards, each sNOTE is redeemable for an ever-increasing number of LP tokens. ![](/files/bNP8etlU1NnYFPtK21Tu) Rewards come from two sources: 1. **Protocol revenue re-investments.** Notional earns transaction fees each time a user lends or borrows and COMP incentives due to the protocol's integration with Compound. Currently, Notional's transaction fees are held in the protocol's reserve and the COMP incentives earned are converted into LP tokens to reward sNOTE holders. 2. **Additional incentives.** The Notional community may choose to provide additional incentives to encourage NOTE staking. Currently, the community allocates 30,000 NOTE per week in additional incentives to sNOTE holders. ### Calculating sNOTE Returns To calculate sNOTE returns, users need to balance the rewards and trading fees received against the IL of holding 80/20 NOTE/WETH LP tokens. The 80/20 pool minimizes IL for LP token holders, but if the price of NOTE moves a lot in a very short period of time, it can still be significant. Here is a step-by-step guide to determining the returns to holding sNOTE vs holding NOTE outright in different market conditions. 1. **Calculate the total reward APY.** The total reward APY is the sum of the re-investment APY, the additional incentive APY, and the trading fee APY. 2. **Choose a holding period.** How long do you plan to hold your NOTE? 6 months? 1 year? Etc. 3. **Choose a NOTE/WETH price change.** Do you expect NOTE to 5x vs ETH? 10x? Etc. 4. **Calculate total reward percentage.** \ `totalRewardPercentage = totalRewardAPY * (holdingPeriod/year)` 5. **Calculate IL.** \ `valueOfPool = (1 + 1 * (priceChange / 100)) ^ (0.8)`\ `assetValueIfHeld = (1 + 1 * (priceChange / 100))`\ `impermanentLoss = ((valueOfPool / assetValueIfHeld) - 1) * 100` 6. **Calculate the simple return.**\ `return = (1 + totalRewardPercentage) * (1 - IL) - 1` 7. **Calculate the annualized return.**\ `annualizedReturn = return * (year/holdingPeriod)` **Example Calculation:** 1. **totalRewardApy** = 100% * reInvestmentApy = 50% * additionalIncentiveApy = 40% * tradingFeeApy = 10% 2. **holdingPeriod** = 6 months 3. **NOTE/WETH price change** = +200% 4. **totalRewardPercentage** = 100% \* 0.5 = 50% 5. **IL:**\ `valueOfPool = (1 + 1 * (200 / 100)) ^ (0.8) = 2.408`\ `assetValueIfHeld = (1 + 1 * (200 / 100)) = 3`\ `impermanentLoss = ((2.408 / 3) - 1) * 100 = 19.7%` 6. **return** = 1.5 \* 0.803 = +20.45% 7. **annualizedReturn** = +20.45% \* 2 = +40.9% ### Redeeming sNOTE sNOTE is only redeemable after the user initiates a cooldown period of 15 days. The cooldown period ensures that sNOTE holders can't immediately redeem upon a collateral shortfall event before Notional governors take action. After the 15 day cooldown period, the user can redeem their sNOTE at any time during the 3 day redemption window. ![](/files/Ue1nUISlmEVLkHbFTJgC) If the sNOTE is not redeemed during the redemption window, the user will need to re-initiate the redemption sequence and wait out the 15 day cooldown again. ### Collateral Shortfall Events A collateral shortfall is a scenario where Notional no longer holds the necessary collateral to make good on its liabilities to lenders and liquidity providers. Collateral shortfalls are critical events that should never happen if the system is working properly. Notional could experience a collateral shortfall for two reasons: 1. **Smart contract hack.** The risk that a hacker exploits a vulnerability or design flaw in the Notional smart contracts that was missed in auditing and testing. 2. **Liquidation failure.** The risk that the price of collateral assets held on Notional fall dramatically and liquidators are unable to liquidate accounts that have borrowed against that collateral before the accounts become insolvent. Minor liquidation failures will be covered by Notional's reserve funds. Only major liquidation failures would lead to collateral shortfalls. In the event of a collateral shortfall, NOTE token holders can hold an on-chain vote to take 50% of the assets held in the sNOTE pool and use them to recapitalize the system. In this event, sNOTE holders would bear a loss of up to 50% of their assets. # Deployments (Mainnet) ## Ethereum Mainnet ### Deployed Contract Addresses | Contract | Address | | -------------- | --------------------------------------------------------------------------------------------------------------------- | | Notional Proxy | [0x6e7058c91f85e0f6db4fc9da2ca41241f5e4263f](https://etherscan.io/address/0x6e7058c91f85e0f6db4fc9da2ca41241f5e4263f) | | NOTE address | [0xcfeaead4947f0705a14ec42ac3d44129e1ef3ed5](https://etherscan.io/address/0xcfeaead4947f0705a14ec42ac3d44129e1ef3ed5) | ### nToken Addresses | Token | Address | | ------- | --------------------------------------------------------------------------------------------------------------------- | | nETH | [0x3410463726a7A22ce0809367a4418FE82Fc31FD3](https://etherscan.io/address/0x3410463726a7A22ce0809367a4418FE82Fc31FD3) | | nDAI | [0x87C478f00999d65F88D3088291a6928b55703444](https://etherscan.io/address/0x87C478f00999d65F88D3088291a6928b55703444) | | nUSDC | [0x2920F9Fc667E780C0CB5a78a104d21413377f97E](https://etherscan.io/address/0x2920F9Fc667E780C0CB5a78a104d21413377f97E) | | nwstETH | [0x9499ad68Cd1b00a869853a986ac3F82401650933](https://etherscan.io/address/0x9499ad68Cd1b00a869853a986ac3F82401650933) | | nFRAX | [0x96bE0C426Ea53ECb6F154bEd27c9dE85722A5C6F](https://etherscan.io/address/0x96bE0C426Ea53ECb6F154bEd27c9dE85722A5C6F) | | nrETH | [0xd623646DA89F9264547272f268785d9C64af9ce3](https://etherscan.io/address/0xd623646DA89F9264547272f268785d9C64af9ce3) | | nUSDT | [0x0Da210F60A179Ee3364123943930dAdbAb8B210e](https://etherscan.io/address/0x0da210f60a179ee3364123943930dadbab8b210e) | | ncbETH | [0xa2ADBc0d7C8Da646f9d5f6CfA9Eb396403067da0](https://etherscan.io/address/0xa2adbc0d7c8da646f9d5f6cfa9eb396403067da0) | | nGHO | [0x2F7350Cb5e434C2d177922110c7e314953B84Afc](https://etherscan.io/address/0x2f7350cb5e434c2d177922110c7e314953b84afc) | ### pCash Addresses | Token | Address | | ------- | --------------------------------------------------------------------------------------------------------------------- | | pETH | [0x4a9e282635567cC4D3C6a24E16C2335f10Dee9B8](https://etherscan.io/address/0x4a9e282635567cC4D3C6a24E16C2335f10Dee9B8) | | pDAI | [0x54fA13A38a690bC69584A7aC8b834c1770959974](https://etherscan.io/address/0x54fa13a38a690bc69584a7ac8b834c1770959974) | | pUSDC | [0xaEeAfB1259f01f363d09D7027ad80a9d442de762](https://etherscan.io/address/0xaeeafb1259f01f363d09d7027ad80a9d442de762) | | pWBTC | [0x83706A2Ec580Fe1Fdb84744366FA02Fb8e25D29D](https://etherscan.io/address/0x83706a2ec580fe1fdb84744366fa02fb8e25d29d) | | pwstETH | [0xfbAdc4f18dDC7EBdBc920d3f9b0Ca7A1296788d1](https://etherscan.io/address/0xfbadc4f18ddc7ebdbc920d3f9b0ca7a1296788d1) | | pFRAX | [0x7Ef4d0168b12b168F14b67c708bc16f7E8BF3dEC](https://etherscan.io/address/0x7ef4d0168b12b168f14b67c708bc16f7e8bf3dec) | | prETH | [0x39A1f8e5D2422CCc5e08c5B4019Ab70147f5cC95](https://etherscan.io/address/0x39a1f8e5d2422ccc5e08c5b4019ab70147f5cc95) | | pUSDT | [0x4ebFc11Ad2Dd1c2A450ba194558D797ee5D305a6](https://etherscan.io/address/0x4ebfc11ad2dd1c2a450ba194558d797ee5d305a6) | | pcbETH | [0x265329C8F15671d7cA501710e3bD0E6CB257948F](https://etherscan.io/address/0x265329c8f15671d7ca501710e3bd0e6cb257948f) | | psDAI | [0xF3C275D450FE624c1F5E31F3Bcb2F8894E96cDF1](https://etherscan.io/address/0xf3c275d450fe624c1f5e31f3bcb2f8894e96cdf1) | | pGHO | [0xbB828e3d0c96B334FE2CF8F18382Bb11F533e878](https://etherscan.io/address/0xbb828e3d0c96b334fe2cf8f18382bb11f533e878) | ### pDebt Addresses | Token | Address | | ------------ | --------------------------------------------------------------------------------------------------------------------- | | pETH Debt | [0x81a2b6C536c058Ef678eD91212fee48f29Ce86d7](https://etherscan.io/address/0x81a2b6c536c058ef678ed91212fee48f29ce86d7) | | pDAI Debt | [0xcc6Fb21312f69ef558ec925e00596123Cbcf747F](https://etherscan.io/address/0xcc6fb21312f69ef558ec925e00596123cbcf747f) | | pUSDC Debt | [0xD5c341E94674cBb603E74e6065211630C1bab6dc](https://etherscan.io/address/0xd5c341e94674cbb603e74e6065211630c1bab6dc) | | pWBTC Debt | [0x19fE8C76f62B4cd875DB4f2a167e4865797598A5](https://etherscan.io/address/0x19fe8c76f62b4cd875db4f2a167e4865797598a5) | | pwstETH Debt | [0xda7f29617B2838829AbAB9A34d3F98b7Bb0a116b](https://etherscan.io/address/0xda7f29617b2838829abab9a34d3f98b7bb0a116b) | | pFRAX Debt | [0x794A782C2F9A859E1947e371f8621B0838bC423e](https://etherscan.io/address/0x794a782c2f9a859e1947e371f8621b0838bc423e) | | prETH Debt | [0x40BF200eEeE9e172f1F8de99C6c5778A4d33A057](https://etherscan.io/address/0x40bf200eeee9e172f1f8de99c6c5778a4d33a057) | | pUSDT Debt | [0x161d33f4B968d714f71C4dFAce094E961e44DdFa](https://etherscan.io/address/0x161d33f4b968d714f71c4dface094e961e44ddfa) | | pcbETH Debt | [0x11dE34Ce32147ba4e913470a5013da80fe3EB2b6](https://etherscan.io/address/0x11de34ce32147ba4e913470a5013da80fe3eb2b6) | | psDAI Debt | [0xaA57dd2A403471d9731b6cad914BCC2f0C466a03](https://etherscan.io/address/0xaa57dd2a403471d9731b6cad914bcc2f0c466a03) | | pGHO Debt | [0xE25D4079f6C303d151DDE2e34D1C56d044A1a13d](https://etherscan.io/address/0xe25d4079f6c303d151dde2e34d1c56d044a1a13d) | # Deployments (Arbitrum) ### Deployed Contract Addresses | Contract | Address | | -------------- | -------------------------------------------------------------------------------------------------------------------- | | Notional Proxy | [0x1344A36A1B56144C3Bc62E7757377D288fDE0369](https://arbiscan.io/address/0x1344a36a1b56144c3bc62e7757377d288fde0369) | | NOTE address | [0x019bE259BC299F3F653688c7655C87F998Bc7bC1](https://arbiscan.io/token/0x019be259bc299f3f653688c7655c87f998bc7bc1) | ### nToken Addresses | Token | Address | | ------- | -------------------------------------------------------------------------------------------------------------------- | | nETH | [0x18b0Fc5A233acF1586Da7C199Ca9E3f486305A29](https://arbiscan.io/address/0x18b0Fc5A233acF1586Da7C199Ca9E3f486305A29) | | nDAI | [0x2C42940A06A3F78b3cB7fc62b5fc7DE404c9216f](https://arbiscan.io/address/0x2C42940A06A3F78b3cB7fc62b5fc7DE404c9216f) | | nUSDC | [0x0F13fb925eDC3E1FE947209010d9c0E072986ADc](https://arbiscan.io/address/0x0F13fb925eDC3E1FE947209010d9c0E072986ADc) | | nWBTC | [0x52602A1075645845a303f86B2BD0b7E7227f99d6](https://arbiscan.io/address/0x52602A1075645845a303f86B2BD0b7E7227f99d6) | | nWSTETH | [0x06D45ef1f8b3C37b0de66f156B11F10b4837619A](https://arbiscan.io/address/0x06D45ef1f8b3C37b0de66f156B11F10b4837619A) | | nFRAX | [0x69633657aCfb930d5A97a2662Dd32ef1aC8a2f57](https://arbiscan.io/address/0x69633657acfb930d5a97a2662dd32ef1ac8a2f57) | | nRETH | [0x6f6603f12af215bdba1f55f643e098530dd45b8f](https://arbiscan.io/address/0x6f6603f12af215bdba1f55f643e098530dd45b8f) | | nUSDT | [0x9c0fbb8cade7b178b135fd2f1da125a37b27f442](https://arbiscan.io/address/0x9c0fbb8cade7b178b135fd2f1da125a37b27f442) | | ncbETH | [0x809B43d2A81A34c4D91BF4815A544d839d0773Bb](https://arbiscan.io/address/0x809B43d2A81A34c4D91BF4815A544d839d0773Bb) | ### pCash Address | Token | Address | | ------- | -------------------------------------------------------------------------------------------------------------------- | | pETH | [0xabc07BF91469C5450D6941dD0770E6E6761B90d6](https://arbiscan.io/address/0xabc07bf91469c5450d6941dd0770e6e6761b90d6) | | pDAI | [0x0Ace2DC3995aCD739aE5e0599E71A5524b93b886](https://arbiscan.io/address/0x0Ace2DC3995aCD739aE5e0599E71A5524b93b886) | | pUSDC | [0x6f28cafe12bd97E474a52bcbfEa6F2c18AE0F53D](https://arbiscan.io/address/0x6f28cafe12bd97E474a52bcbfEa6F2c18AE0F53D) | | pWBTC | [0xB9bFBB35C2eD588a42f9Fd1120929c607B463192](https://arbiscan.io/address/0xB9bFBB35C2eD588a42f9Fd1120929c607B463192) | | pWSTETH | [0xbC323E3564Fb498E55CDc83a3Ea6bB1AF8402D6B](https://arbiscan.io/address/0xbC323E3564Fb498E55CDc83a3Ea6bB1AF8402D6B) | | pFRAX | [0x1fd865a55eaf5333e6374Fb3Ad66D22e9885d3Aa](https://arbiscan.io/address/0x1fd865a55eaf5333e6374Fb3Ad66D22e9885d3Aa) | | pRETH | [0x866eb09d3d1397b8a28cfe5dceeaed9362840385](https://arbiscan.io/address/0x866eb09d3d1397b8a28cfe5dceeaed9362840385) | | pUSDT | [0xd63ace62b925361fc588734022718e919a8081ac](https://arbiscan.io/address/0xd63ace62b925361fc588734022718e919a8081ac) | | pcbETH | [0xA135D7f10545e3a45e24e79eCD4e4c3c78cF56Bf](https://arbiscan.io/address/0xa135d7f10545e3a45e24e79ecd4e4c3c78cf56bf) | | pUNI | [0x8652De5310746E8DE24Cbe17Ee8b5FE1e78febcC](https://arbiscan.io/address/0x8652de5310746e8de24cbe17ee8b5fe1e78febcc) | | pLINK | [0x63FfCFb69EDF8C9cB19a36401cf88C8939C40650](https://arbiscan.io/address/0x63ffcfb69edf8c9cb19a36401cf88c8939c40650) | | pLDO | [0xef3F53046c9b00702f25186D7342d73C789F547a](https://arbiscan.io/address/0xef3f53046c9b00702f25186d7342d73c789f547a) | | pRDNT | [0x0519614643A019fEb53B9F2C395B243253f75DB7](https://arbiscan.io/address/0x0519614643a019feb53b9f2c395b243253f75db7) | | pGMX | [0x6d13D3C51e75f9970733ff8C32715773e1eD73C4](https://arbiscan.io/address/0x6d13d3c51e75f9970733ff8c32715773e1ed73c4) | ### pDebt Address | Token | Address | | ----------- | -------------------------------------------------------------------------------------------------------------------- | | pETHdebt | [0x6EbcE2453398af200c688C7c4eBD479171231818](https://arbiscan.io/address/0x6ebce2453398af200c688c7c4ebd479171231818) | | pDAIdebt | [0x4068A40E229C9e8DF8DEaf716266ef008d673EFE](https://arbiscan.io/address/0x4068A40E229C9e8DF8DEaf716266ef008d673EFE) | | pUSDCdebt | [0xc3882b132011ff3cEa4da81F3303138368dd5D75](https://arbiscan.io/address/0xc3882b132011ff3cEa4da81F3303138368dd5D75) | | pWBTCdebt | [0xc12d27954d9122D971c67eF188736f36629FF958](https://arbiscan.io/address/0xc12d27954d9122D971c67eF188736f36629FF958) | | pWSTETHdebt | [0x41BE0117864dc317D1Cc8100B01c8Ac90da3BA90](https://arbiscan.io/address/0x41BE0117864dc317D1Cc8100B01c8Ac90da3BA90) | | pFRAXdebt | [0x452F5c6238c05E980a235f63dBc11bFBe004cc56](https://arbiscan.io/address/0x452F5c6238c05E980a235f63dBc11bFBe004cc56) | | pRETHdebt | [0x7366d16800c3ca83a085e193ae626d7d565d13b3](https://arbiscan.io/address/0x7366d16800c3ca83a085e193ae626d7d565d13b3) | | pUSDTdebt | [0x2ddb08f2757909537bdf2d2eb2bd4f7a64e8e5dd](https://arbiscan.io/address/0x2ddb08f2757909537bdf2d2eb2bd4f7a64e8e5dd) | | pcbETH | [0x4eE6573a7bf74f6DFeD54bc9A9DE15a81b92e081](https://arbiscan.io/address/0x4ee6573a7bf74f6dfed54bc9a9de15a81b92e081) | | pUNI | [0x692749e5bD565C37F5f562F71B335EeFe046eaA0](https://arbiscan.io/address/0x692749e5bd565c37f5f562f71b335eefe046eaa0) | | pLINK | [0x3482Db39B1fFdFA3ca99F0f829AAb0855088E707](https://arbiscan.io/address/0x3482db39b1ffdfa3ca99f0f829aab0855088e707) | | pLDO | [0xC9C5E5f79738DdD3924C6f02356291eace665EA3](https://arbiscan.io/address/0xc9c5e5f79738ddd3924c6f02356291eace665ea3) | | pRDNT | [0xfBD9e818aC30311896F7d7e5BC18f613BA644B56](https://arbiscan.io/address/0xfbd9e818ac30311896f7d7e5bc18f613ba644b56) | | pGMX | [0x65EA9aff1B12fC8DAC52a9E07CE2928741159a6c](https://arbiscan.io/address/0x65ea9aff1b12fc8dac52a9e07ce2928741159a6c) | # Audits Notional invests in thorough testing and auditing of Notional smart contracts. Here is the list of the multiple [security audits](https://github.com/notional-finance/contracts-v2/blob/master/audits/README.md) Notional underwent: * [Notional V1, Open Zeppelin | Dec 2020](https://blog.openzeppelin.com/notional-audit/) * [Notional V2 Governance, Open Zeppelin | Nov 2021](https://blog.openzeppelin.com/notional-v2-audit-governance-contracts/) * [Notional V2, ABDK | Sept 2021](https://github.com/notional-finance/contracts-v2/blob/master/audits/ABDK%20-%20Notional%20V2%2C%20Sept%201%202021.pdf) * [Notional V2, Certora | Nov 2021](https://github.com/notional-finance/contracts-v2/blob/master/audits/Certora%20-%20Formal%20Verfication%20Report%2C%20Nov%201%202021.pdf) * [Notional V2, ABDK Fixes | Nov 2021](https://github.com/notional-finance/contracts-v2/blob/master/audits/ABDK%20-%20Notional%20V2%20Fixes%2C%20Nov%201%202021.pdf) * [Notional V2, Code Arena | Oct 2021](https://code4rena.com/reports/2021-08-notional/) * [Staked NOTE | Mar 2022](https://code4rena.com/reports/2022-01-notional/) * [Notional V2.1, Consensys Diligence | Mar 2022](https://consensys.net/diligence/audits/2022/03/notional-protocol-v2.1/) * [Wrapped fCash, Code Arena | Jul 2022](https://code4rena.com/reports/2022-06-notional-coop/) * [Leveraged Vaults, Consensys Diligence | Jul 2022](https://consensys.net/diligence/audits/2022/07/notional-finance/) * [Leveraged Vaults + Balancer Vault Strategy, Sherlock | Oct 2022](https://app.sherlock.xyz/audits/contests/2) * [Balancer Vault Strategy Fixes, Sherlock | Jan 2023](https://app.sherlock.xyz/audits/contests/31) * [Convex Leveraged Vault, Sherlock | Mar 2023](https://app.sherlock.xyz/audits/contests/52) * [Notional V3, Sherlock | May 2023](https://app.sherlock.xyz/audits/contests/59) * [Single Sided LP Leveraged Vaults | Nov 2023](https://audits.sherlock.xyz/contests/119) * [External Lending, Wrapped fCash | Jan 2024](https://audits.sherlock.xyz/contests/142) * [Pendle PTs, Vault Incentives | June 2024](https://audits.sherlock.xyz/contests/446?filter=questions) # Bug Bounty [Notional V3 contracts ](https://github.com/notional-finance)are open source for Security Auditors to review the code base. Notional has an active [bug bounty program ](https://immunefi.com/bounty/notional/)through Immunefi. Security researchers can contact Notional's security team at .