# Aave V2 Expenses Methodology

## 1. Overview

Expenses measures the total cost incurred by Aave V2 to operate its liquidity markets and secure the protocol. These costs are primarily comprised of token incentives distributed to lenders, borrowers, and Safety Module participants. These distributions are used to bootstrap liquidity and provide a backstop for the protocol's insolvency risk.

## 2. Data sources

- **Blockchain events**: `RewardsClaimed` events from `IncentivesController`, `stkAAVE`, `stkAAVEwstETHBPTv2`, and `stkABPT` contracts, covering Ethereum
- **External data**: End-of-day price feeds and asset metadata

## 3. Step-by-step calculation

### Component A: Liquidity mining incentive extraction

- **Purpose**: Captures the cost of AAVE tokens distributed to users of the lending protocol.
- **Logic**: `RewardsClaimed` events are parsed from `IncentivesController` contracts. The amount of rewarded assets is extracted for each transaction to identify the total volume of incentives paid to liquidity providers and borrowers within the V2 markets.
- **Key fields**: `amount` (quantity of reward tokens), `token_address` (identification of the reward asset).

### Component B: Safety Module reward tracking

- **Purpose**: Identifies the cost of rewards paid to users who stake assets to secure the protocol.
- **Logic**: `RewardsClaimed` events are extracted from the Safety Module ecosystem, specifically from the `stkAAVE`, `stkAAVEwstETHBPTv2`, and `stkABPT` contracts. These events represent the realized expense of compensating stakers for providing a protocol-wide insurance backstop.
- **Key fields**: `amount` (quantity of reward tokens), `token_address` (identification of the reward asset).

### Component C: USD conversion and aggregation

- **Purpose**: Normalizes all expense components into a standardized currency for reporting.
- **Logic**: Reward amounts are normalized by their respective decimal precision using asset metadata. These normalized values are multiplied by end-of-day price feeds to determine the USD equivalent. Daily totals are aggregated by summing the components from the liquidity mining and Safety Module tracking. All data is processed using UTC day boundaries.

*This methodology was automatically generated by Token Terminal's methodology analyzer.*

Total project operating and incentive expenses.

Expenses

Lending

Lenders deposit funds into Aave and receive interest payments from borrowers (supply-side fees).

Aave is a non-custodial lending protocol built on Ethereum and other adjacent blockchains. Aave was founded by Stani Kulechov and launched in 2017.

AAVE tokenholders own and govern the protocol. They currently take a cut of the total interest paid by borrowers (revenue). Aave’s investors include ParaFi Capital, Framework Ventures, Three Arrows Capital, etc.

Aave V2

Expenses

Expenses

Chain breakdown