Collateralization
Every debt, represented either by a negative fCash balance or a negative cash balance, contributes to an account's collateral requirement. An account's collateral requirement is calculated on a portfolio basis, taking all it's collective assets and debts into consideration across all supported currency types.
Notional allows users to borrow against each asset type held in the Notional system
- Cash Balances
- Positive fCash Balances
- Liquidity Tokens
Each of these assets has a different risk and liquidity profile. Notional treats each asset differently in collateral calculations and applies a haircut to the asset's value as a function of its riskiness.
Free collateral is the central concept that Notional uses to evaluate an account's collateral position and validate an account's prospective transactions.
Free collateral represents the amount of collateral, denominated in ETH, that an account holds beyond what it needs to meet its minimum collateral requirements. If an account’s free collateral figure is positive, the account is adequately collateralized. If the account's free collateral figure is negative, it is under-collateralized and eligible for liquidation.