Notional Finance

Notional provides fixed-rate, fixed-term lending and borrowing via fCash: tokenized claims on a fixed amount of an asset at a future maturity, traded on an on-chain AMM. Notional built fixed-rate, fixed-term lending and borrowing on Ethereum using fCash, a token representing a fixed amount of an asset at a fixed future date. A lender swaps cash for fCash at a rate set by the pool: 100 USDC lent for six months at 5 percent yields fCash of 100 × e^(0.05×0.5) = 102.53, and a borrower mints an offsetting positive and negative fCash pair against collateral (Notional docs, using fCash). V3 removed the hard cliff at maturity by auto-converting matured fixed-rate debt into variable-rate debt, which allowed penalty-free rolls (Introducing Notional V3). This entity is not in steady state. Notional V3 is winding down: the team announced on 19 June 2025 that it would gradually withdraw support, and in November 2025 V3 was announced to cease operations on mainnet and Arbitrum following bad debt from a Balancer vulnerability (Introducing Notional Exponent, KuCoin news wire). The successor product, Notional Exponent, a leveraged yield vault protocol built on Morpho borrow liquidity, went live on 26 January 2026 (Notional Exponent launch details, Notional Exponent docs).

True fixed-rate/fixed-term loans through fCash, rather than variable money-market rates, giving predictable cost of capital for borrowers and lenders.

- fCash fixed-rate markets: Notional's core product. fCash is an ERC-1155 token representing a claim to a fixed amount of an underlying asset at a specific future maturity. Lenders buy positive fCash at a discount and redeem it 1:1 at maturity for a fixed return; borrowers mint negative fCash to receive cash today and repay a fixed amount later. fCash trades against Prime Cash in maturity-specific AMM liquidity pools where the ratio of Prime Cash to fCash sets the fixed interest rate. This is how Notional delivers fixed-rate, fixed-term lending and borrowing on-chain. - Prime money market (variable-rate lending): Introduced in V3, the prime money market lets users lend and borrow at variable rates, integrating with the fixed-rate markets. Deposits are represented as Prime Cash. Fixed-rate debt automatically converts to variable-rate debt at maturity with no settlement penalty, and variable positions serve as the underlying liquidity that fixed-rate pools trade against. - Leveraged vaults: Whitelisted external smart contracts that execute pre-approved yield strategies (e.g. Curve, Balancer, Uniswap LP or staking strategies) funded by fixed- or variable-rate borrowing from Notional. A user deposits collateral, borrows against it, and the combined capital is deployed into the vault; vault assets are recognized as collateral against the debt, enabling leveraged (up to ~10x on some strategies) exposure while paying interest only on the borrowed portion. Positions are overcollateralized and subject to liquidation. - NOTE governance token: NOTE is the ERC-20 governance token of the Notional protocol. Holders propose, vote on, and implement changes to system parameters and smart contracts (one vote per NOTE) via Notional Improvement Proposals through on-chain governance. NOTE is also used to incentivize liquidity providers and, historically, could be staked (sNOTE) to backstop the protocol.

- fCash / nTokens (fCash): Receipt, Lending Receipt Token - Notional Finance (NOTE): Token, Governance & Utility Token

- Collateral: All borrowing and leveraged-vault positions are overcollateralized in volatile crypto assets (ETH, wstETH, cbETH, wBTC, ARB, etc.). A sharp drop in collateral value can push a position below its required collateralization ratio and trigger liquidation, causing loss to the borrower. - Smart Contract: Notional relies on complex custom contracts (fCash ERC-1155 accounting, maturity-specific AMM pools, external leveraged vaults). Despite 17+ audits, bugs in these contracts or in the whitelisted vault strategy code could lead to loss of funds. - Oracle: Collateral valuation and liquidation for borrowers and leveraged vaults depend on price oracles. Manipulated, stale, or inaccurate oracle prices could cause faulty liquidations or allow undercollateralized borrowing. - Counterparty: Leveraged vaults deploy borrowed capital into external protocols (e.g. Curve, Balancer, Uniswap, liquid-staking tokens). A failure, exploit, or depeg in one of those external strategy protocols would directly impair vault positions and the loans backing them. - Governance: Protocol parameters, collateral listings, vault whitelisting and contract upgrades are controlled by NOTE-token governance. Concentrated NOTE holdings or a malicious/erroneous proposal could change risk parameters or upgrade contracts in ways that harm users.

- Instrument shape: similar in that fCash is a claim on a fixed amount at a fixed future date; 100 USDC at 5 percent for six months mints 102.53 fCash; differs in that Zero-coupon discount note or term deposit priced by continuous compounding - Underwriting: similar in that None per borrower. Borrowing is done by minting an offsetting fCash pair against posted collateral; differs in that Secured margin loan rather than credit underwritten term debt - Collateral: similar in that Overcollateralised onchain collateral; V3 added external lending of idle collateral; differs in that Repo style collateral with rehypothecation - Rate setting: similar in that Pool-determined exchange rate across fixed tenors of 3 months, 6 months, 1, 2, 5, 10 and 20 years; differs in that A dealer-quoted term structure across standard maturities - Settlement: similar in that At maturity fixed-rate debt auto-converts into variable-rate debt rather than defaulting, enabling penalty-free rolls; differs in that Rollover of a maturing term loan into an overnight facility - Recourse on default: similar in that Liquidation of collateral. In November 2025 protocol-level bad debt of 641.4 ETH on mainnet plus 80.2 ETH on Arbitrum was socialised, and Balancer and Aura leveraged vault holders lost 100 percent; differs in that Loss given default borne by the lender pool, with no external guarantor - Regulation: similar in that No securities registration or investor gate disclosed; governance is a NOTE holder Snapshot vote with a 1,000,000 NOTE quorum; differs in that Unregulated relative to a bank term deposit or a registered note programme