What Is Notional Finance?
Are you planning to lend your tokens on the Ethereum blockchain? This leaves you with no option other than working with a variable rate lending on quite a number of protocols. Here, your loan interest depends on the supply as well as demand of the token. Obviously, when demand goes high, interest rates rises and vice versa. So, Notional Finance Crypto helps you solve this problem in a decentralized fashion.
This is not good news to borrowers who must be sure about the cost of borrowing. Everyone wants to be sure about the interest rates and cover them before they opt for a loan.
This leads us on to the need of fixed-rate/term lending. Here, borrowers and lenders will agree on a fixed rate of interest. Currently, most lending protocols on Ethereum do not offer this feature. They are not stable sources of credit.
Notional finance now provides a solution to this problem by offering fixed-rate lending for its users.
Who Is The Founder Of Notional Finance?
Notional is a financial protocol developed and launched back in 2020 by a team of stakeholders. They were good at security, technology, trading as well as design.
Who Are The Investors Of Notional Finance?
- Liquidity providers
How Does Notional Finance Work?
If you are familiar with DeFi then you will find this protocol quite interesting. Keep in mind that Notional is still beta hence the only asset that one can borrow is DAI. The maximum amount you can borrow within the platform is 997 DAI.
Here is what you will do to borrow DAI
- Select you loan’s maturity (3 weeks or 3.5 months)
- Choose the amount to borrow
- Select the amount of your collateral you wish to deposit (min.140%)
Fixed Interest Vs Floating Interest Lending Borrowing
Keep in mind that a loan can have a fixed interest rate as well as a floating rate. In a case of fixed interest rate, the interest rate remains intact for the duration of the loan. In case of a floating loan, the interest rates keep on changing over the duration of the loan. Floating loan changing depending on the situation in the market, prime rate as well as underlying index.
Did you know that Fixed Rate Crypto Lending and Borrowing with Notional Finance applies on a type of loan and debt agreement? This includes auto loans, credit card bills, monetary loans and mortgages to mention but a few.
Advantages and Disadvantages – Fixed Vs Floating Loan
Fixed Rate Loan
- Fixed interest rate like the notional finance protocol eliminates uncertainty.
- It is advantageous to the borrower especially if the market rates rise above the fixed rate
- It is advantageous to the lender if the market rates fall below the fixed rate
Floating Rate Loan
- It moves with the market rates
- It is an added advantage to lenders when the market rates increase above the fixed rate
Did you know that a rise in the market rates increases the cost of the loan for the borrower as well as increases the interest income for the lender? A fall in the market rates will decrease the cost of the loan for the borrower as it decreases the interest income for the lender.
How To Borrow Crypto With Fixed APR Using Notional Finance?
Notional finance protocol on Ethereum now allows you to lend as well as borrow crypto at fixed rates. This is a good opportunity for the crypto investors as they can have their calculations right and earn good profits. Fixed rate debt markets are normally an evolution of decentralized lending. This will contribute to a growth to the Ethereum ecosystem.
Notional finance now allows you to borrow crypto with a fixed Annual percentage rate. This means that the interest rates are calculated on a yearly basis.
How To Lend Crypto With Fixed APY Using Notional Finance?
Did you know that fixed lending with a fixed annual percentage yield is becoming a massive market for crypto users? This ability now allows users particularly the US citizens to borrow as well as lend with confidence and certainty. They are no longer worried for additional payments on your loans.
Today, Notional.finance now provides fixed rate debt on Ethereum using a new on-chain AMM alongside dynamic curve sensitivity.
This is a good opportunity for DeFi traders to lock their borrowing costs and make good use of this opportunity.
How To Provide Liquidity In Notional Finance?
Borrowers as well as lenders are fond of changing the exchange rate. They take funds from one side of a market then deposit on the other side. These interactions are only possible if there is liquidity on both markets. To achieve liquidity, Notional finance requires fCash tokens which acts as liquidity.
Notional finance only provides liquidity to a market at a specific maturity. It provides this through remove liquidity as well as add liquidity. Within this ecosystem, you can obtain liquidity by depositing fCash tokens to a specific exchange rate. When you submit fCash to add, you we will calculate your Dai using the current exchange rate. We will then mint liquidity tokens to that account where you do your contributions.
What Is fCash Token? How fCash Works?
fCash tokens play fundamental roles within the Notional finance ecosystem. We have two main types of fCash
Positive fCash Balances
These are in form of assets that you can redeem for currency at maturity
Negative fCash Balances
These are debts as well as obligations where the user must provide a unit of currency at maturity.
In other words, we can say that fCash balances are assets as well as debts that speak volumes when a user wants to borrow or lend crypto. As a user within this ecosystem, it is crucial to obtain these token for easy operation.
Notional Finance Current Governance Setup
There is no doubt that governance is the most crucial part of the Notional system. It optimizes capital efficiency as well as effectively all the needs of liquidity providers not to mention the consumers. That is why notional is keen on adjustment as well as selection of set of governance that will tackle all the platform’s risk as well as trading dynamics.
It is worth mentioning that its founding team currently governs Notional Finance. Did you know that this team holds admin keys to the contracts as well as hosts user interface?
Notional Finance Roadmap To Community Ownership
Notional finance crypto is making efforts to achieve decentralization. So, the developers are currently pursuing a strategy of progressive decentralization. Here, the developers are willing to share their keys, relinquish control as well as share the keys with the community.
Pros And Cons Of Notional Finance
- It gives crypto users the same access to stable financing.
- The ability to provide fixed-rate lending makes the DeFi space accessible to more mainstream users
- Borrow against your crypto without worrying about changing interest rates
- Smart Contract risks
- New to the business
Notional Finance Whitepaper And Social Media Handles
Whitepaper of Notional Finance
Notional Finance Facebook
Notional Finance Twitter
I am not able to find dedicated Notional Finance Reddit sub and Notional Finance Github.
Takeaway – Notional Finance Crypto Review
- Notional finance is a new protocol in the crypto market that allows users to lend and borrow crypto at fixed rates.
- The ability to lend as well as borrow at fixed rates opens up a new dimension as well as financial design space for DeFi and Ethereum ecosystem.
- However, Governance is the most crucial part of the Notional system. Right now, the control is with the Notional Finance team but soon it will be a community governance mechanism with an airdrop token or similar.
- Governance optimizes capital efficiency as well as effectively all the needs of liquidity providers not to mention the consumers
- Moreover, fCash tokens play fundamental roles within the Notional finance ecosystem.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates