Fixed Rate Borrowing
Overview
Fixed rate borrowing lets you borrow against your crypto at a fixed rate.
Borrowing requires collateral.
Borrowers can be liquidated if the value of their collateral falls below their liquidation price.
Creating a position
To take out a loan, follow these steps.
Depositing collateral
On Notional, your collateral earns yield. By default, your collateral will earn the variable lending rate.
But you can also choose to lend your collateral at a fixed rate or provide it as liquidity. Deciding how to use your collateral will affect the APY that you earn and the max LTV on your loan. Lending will give you the highest LTV while fixed rate lending or liquidity will usually give you a higher APY but a slightly lower max LTV.
Once you've decided how you want to deposit your collateral, make your deposit. Use the lending, fixed rate lending, or providing liquidity guide for reference on how to do this.
Taking out your loan
Go to the fixed rate borrow page.
Pick a network.
Pick the asset you want to borrow.
Input the amount you want to borrow and select a maturity.
Check your liquidation risk. Notional shows you a health factor and liquidation prices to help determine your risk:
The health factor gives an approximation of how risky your account is. The liquidation prices give you specific market prices which would cause you to be liquidated. In this case (user is borrowing USDC against ETH), the account would get liquidated if the price of ETH fell to $1,360 or if the price of USDC rose to $2.59.
Click Continue to Review.
Click Submit.
Viewing your position
To find your position, go to the holdings tab on the portfolio page.
This page shows you detailed info about your position. You can see:
Details about your collateral. It's value, what APY it's earning, etc.
Details about your debt. The amount you owe, the APY, how much interest you've accrued.
Your liquidation risk. Your health factor, your liquidation prices.
Market APY vs. APY at Maturity
The UI shows two APYs for a fixed rate debt - a Market APY and an APY at Maturity.
Market APY: The current fixed APY offered at this maturity.
APY at Maturity: The fixed rate you got when you entered into the position.
Changes to the Market APY do not affect the APY at Maturity. If you hold the position to maturity you will get the APY at Maturity no matter what happens to the Market APY before maturity.
The Market APY matters if you want to exit your loan before maturity. Changes to the Market APY before maturity will cause your total earnings to fluctuate and change the amount that you can withdraw.
Managing your position
This guide will show you how to take all the actions you might want to take with your loan.
Depositing collateral
To deposit more collateral, follow these steps:
Go to the portfolio holdings page.
Click on the "Reduce Risk" button at the top of the page and select "Deposit Collateral"
Select what token you want to deposit as collateral and input how much. See the depositing collateral section of this guide for more info on how to decide a deposit type.
Choose the deposit asset type from the dropdown menu.
Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
Click "Continue to Review," then click "Submit".
Repaying debt
To repay your debt using tokens in your wallet, follow these steps:
Go to the portfolio holdings page.
Click on the "Reduce Risk" button at the top of the page and select "Repay Debt"
Choose the debt to repay and enter the amount you want to repay in the repayment field.
Check your liquidation risk. You should see your Health Factor and Liquidation Prices improve.
Click "Continue to Review," then click "Submit".
Converting debt to variable rate
Go to the portfolio holdings page.
Find your debt, expand the row, and click "Manage".
Select the variable rate.
Enter the amount of debt you want to convert. You can convert some of your loan or all of it.
NOTE - liquidation risk may change slightly due to rolling. You will also pay a fee to exit your fixed rate loan early. The fee can be seen in the trade summary.
Fees
Borrowing at a fixed rate includes a fee when you enter the position and when you exit before maturity. If you exit after maturity, there is no fee for withdrawing your assets.
The fee for borrowing fixed is 8% of the total interest you will owe at maturity, paid upfront.
This means that fees are higher when interest rates are higher and when you are borrowing for longer periods of time. Fees go to zero as you get closer to maturity.
Example entry fee calculation
User wants to borrow 100,000 USDC at a fixed rate of 10% for 6 months.
Total guaranteed interest = 100,000 USDC * 10% / 2 = 5,000 USDC.
Entry fee = 5,000 USDC * 0.08 = 400 USDC.
Early exit
If you want to exit your loan early, you will need to pay another fee. This fee will be 8% of the remaining interest at the current market APY, not at the rate you locked in when you entered.
Example exit fee calculation
User borrowed 100,000 USDC at a fixed rate of 10% for 6 months.
User waits 3 months and then wants to exit. The current market rate is still 10%.
Total remaining interest = 100,000 USDC * 10% / 4 = 2,500 USDC.
Exit fee = 2,500 USDC * 0.08 = 200 USDC.
LTVs and liquidation risk
Loan to Value (LTV) is the value of your loan divided by the value of your collateral.
The higher your LTV, the riskier your position. If your position goes above the Max LTV, you can be liquidated.
Calculating Max LTV
Max LTVs on Notional are calculated using a collateral factor and a debt factor.
Every collateral type has a collateral factor and every debt type has a debt factor.
For example, ETH variable rate lending has a collateral factor of 0.87 and USDC fixed rate borrowing has a debt factor of 1.15. The Max LTV = 0.75
Collateral factors
Each collateral type has a collateral factor. Collateral factors can be different depending on collateral types even if the token is the same. For example, fixed rate ETH lending has a different collateral factor than variable rate ETH lending.
To find collateral factors:
Go to the lending, fixed rate lending, or provide liquidity page.
Select the "list" view.
Find the collateral factors for that collateral deposit type along the right-hand side.
Debt factors
Each debt type has a debt factor. Debt factors can be different depending on debt types even if the token is the same. For example, fixed rate USDC borrowing has a different debt factor than variable rate USDC borrowing.
To find debt factors:
Go to the borrowing or fixed rate borrowing page.
Select the "list" view.
Find the debt factors for that debt type along the right-hand side.
Monitoring risk
Notional helps you monitor your liquidation risk in three ways:
Health factor. The health factor is a number from 1 - 5 that gives you an approximate sense of your risk. If it drops below 1, you can be liquidated.
LTV. Loan to Value (LTV) = the value of your debt / the value of your collateral.
Liquidation prices. Notional shows you what the price of your collateral or debt would have to get to for you to get liquidated.
You can find these risk metrics on the portfolio holdings page.
Liquidations
If you become under-collateralized you can be liquidated immediately.
Notional uses a fixed discount liquidation system with a default liquidation amount of 40%. That means that a liquidator can purchase up to 40% of one of your collateral assets at a fixed discount to its oracle price.
If 40% of your collateral is not enough to return your account to the minimum collateralization level, the liquidator can purchase as much of your collateral as necessary to get you back to the minimum level after the liquidation.
Liquidation discounts
Each token has a liquidation discount. The discount that a liquidator will get is the max of the collateral token's liquidation discount and the debt token's liquidation discount.
For example, say that the USDC liquidation discount is 2%, the ETH liquidation discount is 5%, and you are borrowing ETH vs. USDC collateral. A liquidator would get a 5% discount to liquidate your USDC and repay your ETH debt even though USDC's liquidation discount is only 2%.
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