Notional Finance Review 2021

Notional is an on-chain Ethereum protocol that allows crypto users to borrow and lend at predefined maturities and fixed rates. Notional facilitates fixed-rate lending, borrowing of cryptocurrencies at fixed rates through an innovative financial primitive called fCash. Fixed-rate financing touches all the edges of the modern financial markets. A significant portion of the US debt is delivered at a fixed interest rate since they offer minimum risk and certainty to the crypto market participants. So, Notional Finance provides this ability to an otherwise decentralized financial system on Ethereum and offers crypto users a way to stable financing.

What Is Notional Finance?

To define Notional Finance, it is a novel Ethereum protocol introduced in the crypto market that enables crypto traders to borrow and lend digital assets at fixed rates. Notional’s lending and borrowing abilities at fixed rates have created new dimensions and financial design space for the Ethereum and DeFi ecosystem. However, the most significant aspect of Notional is the governance that optimizes capital efficiency and all the requirements of liquidity providers.

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How Does Notional Finance Work?

The lending and borrowing processes on Notional Finance are extremely intuitive from the user’s viewpoint, especially if they are already acquainted with these DeFi lending exchanges. Since the platform is still operating in its beta phase, the only crypto that can be borrowed is DAI, with a maximum limit capped at 997 DAI.

The Notional Finance platform works as follows:-

  • Users will need to choose a maturity date for their loan. The maturity date varies from 3 weeks to 3.5 months.
  • After choosing the maturity date, they need to select the amount they wish to borrow.
  • Users have to choose and confirm the amount of collateral they wish to deposit, and the minimum amount of collateral is 140%.

Note that, like any other DeFi lending platform, the borrowed amount is automatically paid out to the Ethereum wallet as soon as the loan is confirmed. One can view the loan position in the Notional dashboard. Also, note that though the interest rates are fixed, there is no guarantee that the collateral level will remain fixed.

How Does Notional Finance Work Under the Hood?

The most essential pillar of Notional Finance is their fCash token. fCash tokens provide a reliable and simple mechanism for the Notional users who want to transfer value to a future date. Trading fCash enables traders to transfer value through time effectively, the flexibility of which creates a new dimension in the financial DeFi space on Ethereum. So, essentially, fCash are transferable tokens, representing claims on positive or negative cash flows in the future.

These obligations are traded and tokenized in the custom AMM implementations of Notional. The unique liquidity or dynamic curve sensitivity is designed in such a way so that it minimizes the slippage while trading with fCash tokens. This is important since an insignificant change in the exchange rate may lead to significant changes in the interest rates.

Every trader using Notional comes across the liquidity pools. Moreover, every maturity date possesses a liquidity pool that ensures the borrowers and lenders sell and buy fCash at a reasonable price. Here is an example of the fDAI liquidity pool with December 1, 2020, as the maturity date.

Who Created Notional Finance?

Notional Finance was established and launched by a group of stakeholders in early 2020, who had the technical know-how of the matters relating to design, trading, technology, and security.

How Is Notional Governed?

The Notional lending platform is devised to optimize the balance and efficiency of capital and the requirements of the liquidity provider and the system’s end-users. A set of systematic parameters are required to create this balance that deals with the trading dynamics and risks on the Notional platform. However, the platform is currently being governed by the founding Notional Finance team, and they are successfully trying to make a global reach.

Features of Notional Finance

Notional Lend

Lending digital currencies is made easy with Notional. Lenders can lend DAI and USDC at fixed rates. If one wants to lend their currency at a fixed interest rate, they can buy fCash tokens. The lender exchanges his currency during the trade with a greater, fixed amount of that particular currency at a specified time. This exchange rate determines the loan’s fixed interest rates between the time the trade takes place and the time when the fCash matures.

Here, the lender lends 100 DAI to the liquidity pool at 5% for 3 months. At the loan’s maturity on December 1, 2020, the loan amount of 100 DAI along with a 5 DAI interest rate will be returned. The lender may redeem and exchange the fCash for currency when the loan matures.

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Notional Borrow

A user can also borrow with certainty on Notional. Borrowers can borrow DAI and USDC at fixed rates. If they want to borrow from Notional at a fixed interest rate, they can mint and sell their fCash in exchange for currency. As a borrower, first, they need to deposit collateral into their Notional Portfolio.

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The borrower then mints the fCash tokens at the chosen maturity, sells them into the liquidity pool, and gets currency in exchange. Once the borrower has the currency, he can withdraw it but with an obligation to repay the fixed amount collateralized by Ethereum. When the loan matures, here, on December 1, 2020, he can repay either with the currency or the collateral used to cover the loan.

Notional Liquidity

Notional provides liquidity pools for users to earn profits. One can provide DAI and USDC and earn a yield. Liquidity providers, who capitalize liquidity pools, contribute fCash and currency and function as counterparty to the borrowers and lenders. In return for this contribution, the liquidity providers get fees every time a borrower or lender trades between fCash and currency and that makes Notional Finance a reliable bitcoin lending website that is preferred by many users.

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Notional Finance Review: Pros and Cons

Pros Cons
Fixed interest rate eliminates uncertainty. Relatively new in this market.
Access to stable financing. Smart Contract risks.
No worries relating to fluctuations in the interest rates.  

Getting Started With Notional Finance

By now, it is clear how fixed-rate lending and borrowing is a crucial building block of the financial infrastructure, and DeFi space realizes the potential of the same. There is no denying that fixed-rate borrowing will dominate over variable-rate borrowing in the DeFi space, similar to it did in the traditional financial markets. Currently, DeFi is filled with high net-worth speculators, meme chasers, and self-identified degenerates. This has resulted in incredibly volatile interest rates.

Notional Finance traders can take full advantage of this volatility rather than getting adversely affected by it. Those who lend or borrow get competitive market rates that do not change once the trade is complete.

Notional Finance is designed to optimize capital efficiency. This means users receive the best prices and make the most out of their capital.

DeFi traders can:-

  • Lock the lowest borrowing rates on DAI for fixed-rate financing their yield for the subsequent six months.
  • Access the fixed rates on the long Ethereum trades for as long as six months.

CeFi crypto institutions and traders can:-

  • Borrow and lend cryptocurrency without any counterparty risk.
  • Evade the overall portfolio risk and gain access to working capital.

Borrow at Fixed Rates with Notional Finance

Notional Finance Ethereum protocol enables users to borrow and lend cryptocurrencies at a fixed rate. This provides a good opportunity for these crypto investors to get an accurate calculation and earn huge profits. Fixed-rate debt markets are normally the advanced version of decentralized lending that contributes to the growth of the Ethereum ecosystem.

Notional enables users to borrow cryptocurrencies with an annual fixed percentage (this implies that interest rates are calculated every year).

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Lend With Notional Finance

The process of crypto lending with a fixed percentage yield has become a massive market for cryptocurrency users. This ability has allowed traders, especially in the US, to lend and borrow with utmost certainty and confidence. There is no need to worry about the additional loan payments.

Currently, Notional Finance offers fixed-rate debt on ETH by using a new on-chain AMM along with a dynamic curve sensitivity. This opportunity is perfect for the DeFi traders who would like to lock their borrowing costs and reap the maximum benefit out of it.

Provide Liquidity and Earn Returns at Notional Finance

Lenders and borrowers like to modify the exchange rate. They gather funds from one end of the market and deposit on the other end. Such an interaction is possible only in the presence of liquidity on both sides. To obtain a high level of liquidity, Notional Finance provides fCash tokens that act as liquidity to both lenders and borrowers.

However, Notional Finance only offers the fCash liquidity to the market at specified maturity date. The platform adds liquidity and removes liquidity functions through which users can acquire liquidity by depositing more fCash tokens at a specified exchange rate. When users submit their fCash to add, the platform calculates the DAI using the current exchange rate. Subsequently, Notional mints liquidity tokens and sends them to the user account.

fCash Token & How Does It Work?

One of the best things about the Notional Finance platform is its fCash token. They are the building blocks of this crypto ecosystem. fCash tokens are transferable tokens that play an essential role in representing a claim on the positive and negative cash flows at specified points in the future. They always operate in pairs, i.e., assets and liabilities. So, there are two central fCash types:-

Positive fCash Balances

These are the asset form of fCash that users can redeem for currencies at the time of maturity.

Negative fCash Balances

These are the liabilities for debts and obligations in which the users must give a currency unit at the time of maturity.

All in all, fCash balances consist of both assets and liabilities or debts that play a fundamental role when borrowing and lending crypto assets. So, the users must obtain the fCash tokens for effective operation on the platform.

Notional Finance App

Notional Finance desktop app is available on the official website. However, to launch the app, users need to connect their wallets to view their portfolio on the app.

Connect Your Wallet with Notional Finance

Notional Finance does not provide a wallet on its platform for security reasons. To start using the platform, one must connect their wallet to Notional. Wallets are used to store, receive and send cryptocurrencies like Ethereum. There are many forms of wallet. However, Notional supports the following five wallets:-

  • Ledger
  • Trezor
  • MetaMask
  • WalletConnect
  • Authereum

Notional Finance Customer Support

Notional’s customer support page is under construction, but they have quite an extensive FAQ section on their official page.

The platform also offers customer service through its social media page:-

Twitter account: https://twitter.com/NotionalFinance.

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Notional Finance Review: Conclusion

Currently, Notional Finance has successfully attracted enough liquidity to initiate the whole lending system. It has enabled users to lend or borrow huge amounts of cryptocurrencies effectively and efficiently. One of the most important functions of DeFi space is to make fixed-rate lending more accessible to mainstream users. On the other hand, the fixed-rate borrowing for the institutional traders and investors will be a relief as crypto investing is made similar to the system of traditional finance.

FAQs

Is Notional Finance Legit & Safe?

Notional Finance prioritizes security. The Notional team ensures safe and secure borrowing and lending on the platform. They work with industry experts and leaders and ensure safety through smart contracts. They also ensure sound economic assumptions on their protocol’s design.

How Does Notional Finance Work?

Those who know how DeFi works will find the Notional Finance protocol very interesting. Notional is still in its Beta phase, and hence, the only currency one can borrow on this platform is DAI, and the maximum amount of DAI that can be borrowed within the platform is 997 DAI. To borrow DAI, users need to choose a maturity date of their loan, ranging from 3 weeks to 3.5 months, choosing the loan amount, selecting and confirming the collateral amount they wish to deposit. The minimum collateral value is 140%.

What Is fCash Token?

Notional Finance offers fixed-term lending, borrowing crypto assets at fixed rates through their innovative and novel financial primitive known as fCash. fCash tokens are transferable tokens. They offer a reliable and simple mechanism to the Notional users and move value through time.

Note: Notional Reviews are not to be considered an endorsement or investment advice of any kind. Lenders and borrowers are requested to seek independent advice from experts before trading on cryptocurrency exchanges.

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