nToken Net fCash
The nToken is the counterparty to all end user lends and borrows that get executed through Notional's liquidity pools. When a user borrows from a liquidity pool, that user puts fCash into the pool and takes out cTokens. This means that the nToken now has more fCash and fewer cTokens than it had before because it owns all the liquidity pool's liquidity tokens. This gives the nToken a positive net fCash position in that maturity.
Let's take a look at an example nToken portfolio:
Maturity | Liquidity Tokens | fCash |
March 1 2022 | +200 | -200 |
June 1 2022 | +300 | -300 |
December 1 2022 | +500 | -500 |
Liquidity tokens are just claims on cTokens and fCash sitting in a liquidity pool. Let's break those liquidity tokens into their underlying claims and assume that each liquidity token has a claim on 1 cToken and 1 fCash for simplicity.
Maturity | cToken Claim | fCash Claim | fCash |
March 1 2022 | +200 | +200 | -200 |
June 1 2022 | +300 | +300 | -300 |
December 1 2022 | +500 | +500 | -500 |
If we add the fCash that the nToken has in its portfolio to the fCash claim that the nToken has via its liquidity tokens, we get its net fCash position.
Maturity | cToken Claim | fCash Claim | fCash | Net fCash |
March 2022 | +200 | +200 | -200 | 0 |
June 2022 | +300 | +300 | -300 | 0 |
December 2022 | +500 | +500 | -500 | 0 |
When end users lend and borrow they change the amount of cToken and fCash claims of the nToken's liquidity tokens and give the nToken net fCash positions.
For example, consider an end user borrowing 100 cTokens from the March 2022 maturity in exchange for 105 fCash.
Maturity | cToken Claim | fCash Claim | fCash | Net fCash |
March 2022 | +100 | +305 | -200 | +105 |
The liquidity pool now only holds 100 cTokens, but it holds 305 fCash. So now the nToken has a net fCash position of +105 in the March 2022 maturity. In other words, the nToken is now a net lender in this maturity.
The same thing can occur in the other direction. Now consider what would happen if a second user came in to lend 200 cTokens in exchange for purchasing 208 fCash.
Maturity | cToken Claim | fCash Claim | fCash | Net fCash |
March 2022 | +300 | +97 | -200 | -103 |
The liquidity pool now holds 300 cTokens and only 97 fCash. So now the nToken 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. Large net fCash positions can also affect the slippage that users incur when redeeming their nTokens.
Last modified 7mo ago