Notional V2

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nToken Blended Interest Rate

This page describes the process for calculating an nToken's blended interest rate with the help of an example. We are going to break down the nToken account into its constituent assets, and record the rate at which each constituent asset is accruing interest. The aggregate interest rate of all the assets in the nToken account, weighted by the proportional value of each asset, gives us the rate at which the nToken account as a whole is earning interest. This is the blended interest rate.

Here is the example nToken account:

Liquidity Tokens

fCash

Step 1

Convert the nToken account's liquidity tokens into their claims on cTokens and fCash.

fCash

Step 2

fCash and cTokens don't share the same denomination (fCash is denominated in underlying currencies like DAI, not cDAI). Convert the amount of cTokens to the underlying equivalent.

fCash

Step 3

Get the interest rate corresponding to each asset. We retrieve the cToken interest rate from Compound and get the fCash interest rates from the oracleRates on the corresponding liquidity pools. Recall the formula for valuing fCash - as time passes and timeToMaturity decreases, the present value of an fCash asset will increase at its associated oracleRate.

Amount

Interest Rate

5%

6%

7%

8%

Step 4

Take the weighted average of the interest rates by value.

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