Fixed Rate Borrowing

What is fixed rate borrowing

Notional allows you to borrow against your crypto. All borrowing on Notional is overcollateralized, so in order to borrow you need to deposit collateral.
When you borrow at a fixed rate, you select a maturity and lock in an interest rate that won't change until the loan matures.

Why would you borrow

Many users like to borrow because it allows them to access capital in the form of a loan without having to sell their crypto. This means that you can have access to extra cash while keeping your upside price exposure to your assets.
Some users use the borrowed funds to pay for expenses. Other users use the extra cash to trade or attempt to capture investment opportunities.

How much can you borrow

The amount you can borrow depends on what assets you supply as collateral and what asset you borrow. Some collateral types are riskier than others, and so you can borrow less against them. For example, you can borrow ~0.85 USDC vs. 1 DAI but you can only borrow ~0.7 USDC against 1 USDC's worth of ETH.

Transaction fees

When you borrow fixed, you pay a fee. The current fee is 0.3% on the APY. This means that your fee is smaller when you fix your rate for a short period of time and larger when you fix your rate for a long period of time.
For example, if you're borrowing 1,000 USDC fixed for one year, you will pay an upfront fee of 3 USDC (1,000 * 0.3% * 1 year). But if you're only fixing your rate for six months, that fee will be 1.5 USDC (1,000 * 0.3% * 0.5 years).
Remember - transaction fees also apply if you exit your loan before maturity. If you hold your loan until maturity there is zero fee on exit, but if you exit before maturity the same 0.3% on the APY fee will apply.

What happens at maturity

When your loan matures, you will automatically be rolled forward to the next maturity and your borrow rate will be re-fixed at a 2.5% penalty to the market rate. To avoid this penalty, you can roll your loan forward or pay your loan off prior to maturity.

What is liquidation

Liquidation can occur when the value of you collateral decreases enough for you to cross the liquidation threshold. During liquidation, some of your collateral will be purchased at a discount to its value by a liquidator who will repay your debt on your behalf.

Why is liquidation necessary

In order to keep Notional lenders safe, the protocol needs to liquidate borrowers when the value of their collateral decreases too much. This helps Notional avoid the situation where users have outstanding borrows that are larger than the amount of collateral they hold on the protocol.

How to avoid liquidation

There are two ways you can avoid liquidation when the value of your collateral starts to decrease: you can either pay back your loan, or deposit more collateral.