would the exchange rate between cUSDC / USDC depreciate in value if the value of cToken will only earn or accumulate interest from underlying token?
If so, would you mind if you can walk me with a detailed example how a lender earn their yield assuming three scenario
- cUSDC/USDC or cDAI/DAI- exchange rate unchanged between Prior maturity to At Maturity
- cUSDC/USDC or cDAI/DAI appreciated 10% Prior maturity to At Maturity
- cUSDC/USDC or cDAI/DAI depreciated 10% Prior maturity to At Maturity
It helps me understand more about the risk of Index product which holds Fixed Rate product from Notional.
Hey @Achan it is not possible for the cUSDC/USDC exchange rate to depreciate. The Compound system is constructed such that the cToken/token exchange rates can only increase with time.
So I think that the illustration you pulled from Notional’s documentation steps through an example of the only potential scenario (cToken exchange rates increasing with time). If you have further questions on this, would you like to take them off this forum? If so, please feel free to jump in Notional’s discord and we can answer them there!
Having said all that, what could potentially happen is that Compound gets hacked and its USDC gets drained. That is a risk inherent to using Notional. So Notional users take the risk of Notional’s smart contracts as well as Compound’s smart contracts.