Notional is a protocol that facilitates both fixed-rate, fixed-term and variable-rate lending and borrowing through an innovative financial instrument called fCash.
Notional V3 represents a significant upgrade in DeFi lending, introducing the prime money market for variable-rate lending and borrowing. This new feature seamlessly integrates with Notional's fixed-rate markets to enhance yields and user experience, while maintaining its core as a fixed-rate lending protocol. Variable-rate lenders in V3 earn by lending to over-collateralized borrowers, with the option for unused funds to be lent out on external markets like Compound or Aave for additional yield. Notional operates using two key instruments: fCash and nTokens. fCash is central to Notional’s lending and borrowing mechanism. When users engage in fixed-rate transactions, they either receive or owe fCash, which represents their commitment to future cash flows. For lenders, fCash is an asset signifying the amount plus interest they'll receive at maturity. For borrowers, it's a liability indicating the principal and interest they owe. When users provide liquidity to Notional’s fixed-rate pools, they receive nTokens. These ERC20 tokens represent the user's share in the liquidity of these pools. nTokens generate returns from various sources, including interest accrued on the liquidity provided (in the form of Prime Cash and fCash), transaction fees from fixed-rate activities, and NOTE incentives. nTokens offer users a more passive investment option compared to actively managing fCash positions.
Notional V3 generates revenue through transaction fees from lending and borrowing activities. There are no fees for lending at a variable rate or for nToken redemption, but fees apply for fixed-rate borrowing and leveraged vault transactions. The protocol's ability to reallocate funds to different money markets increases its capacity to optimize returns and sustain its revenue stream.
You can earn on Notional V3 through multiple methods. You can deposit funds for variable-rate lending to earn interest from borrowers, with the flexibility to withdraw at any time without fees. You can also earn through interest and transaction fees by lending at fixed rates or providing liquidity, represented by nTokens. For more risk seeking users, you can engage in leveraged strategies for potentially higher returns, either through leveraged vaults or leveraged lending within the same currency. Each method offers different levels of involvement and risk, catering to both passive investors and those who are more actively engaged in DeFi strategies. Notional V3's diverse offerings aim to cater to a wide range of DeFi users, from those seeking simple, passive returns to advanced users leveraging sophisticated strategies for maximum yield.