nToken Portfolio

Basic structure

The nToken's portfolio holds a cToken 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 cToken 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 cTokens 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 cToken and 1 fCash.

Maturity	cToken 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.

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

Net fCash changes

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 if a user borrowed 100 cTokens from the March liquidity pool in exchange for 105 fCash. The liquidity tokens would have a claim on 100 fewer cTokens and 105 more fCash. Here is what the March maturity part of the nToken portfolio would look like after this trade.

Maturity	cToken Claim	fCash Claim	fCash	Net 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 cTokens in exchange for purchasing 208 fCash from the March liquidity pool. The liquidity tokens would now have a claim on 300 cTokens and only 97 fCash.

Maturity	cToken Claim	fCash Claim	fCash	Net 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.