Liquidity Pools
Notional makes fCash available to trade within its built-in AMM-enabled liquidity pools. A Notional liquidity pool holds fCash alongside its settlement currency (cDai alongside fDai, for example). A liquidity pool refers to a maturity: a Dec 1 2021 liquidity pool holds Dec 1 2021 fCash.
Liquidity providers capitalize Notional’s liquidity pools. They contribute cTokens and fCash to the liquidity pools and act as counterparty to the lenders and borrowers that are active on the protocol. In exchange for their contribution, liquidity providers earn fees every time a lender or borrower trades between cTokens and fCash.
To deposit currency into a liquidity pool, a liquidity provider first specifies a liquidity pool and the amount of cash they want to supply as liquidity. Then the liquidity provider mints a pair of fCash tokens.
The liquidity provider then deposits their cTokens and the positive fCash into the liquidity pool and receives liquidity tokens in return.
Now the liquidity provider has liquidity tokens and an obligation that is offset by the positive fCash that their liquidity tokens entitle them to.
When a liquidity provider provides currency to a liquidity pool, they receive liquidity tokens. Liquidity tokens represent their proportional claim on the cTokens and fCash tokens in that pool. A liquidity provider can redeem liquidity tokens for these underlying assets at any time.
Three user types interact with Notional liquidity pools: lenders, borrowers, and liquidity providers. Lenders deposit cDai into the pool and receive fDai (a promise to receive a fixed amount of Dai at a future date). Borrowers take cDai from the pool and deposit fDai (a promise to pay a fixed amount of Dai at a future date). The liquidity provider adds cDai and Dec 1 2021 fDai into the pool which can be lent or borrowed by either party.
Last modified 1yr ago