# Aave V2 Supply-side fees Methodology

## 1. Overview

Supply-side fees is defined as the share of interest and flash loan fees generated by Aave V2 that is distributed to liquidity providers. This metric is utilized to assess the economic incentives offered to depositors who supply capital to the protocol's lending pools. By subtracting the protocol's retained share (reserve factor) from the total interest accrued, the earnings flowing directly to the supply side are isolated. These fees are denominated in the underlying assets, normalized by decimal precision, and converted to USD using end-of-day price feeds.

## 2. Data sources

- **Blockchain events**: `ReserveFactorChanged` and `ReserveInitialized` events from `LendingPoolConfigurator` contracts, `ReserveInitialized` events from `AMMLendingPoolConfigurator` contracts, `FlashLoan` events from `LendingPool` contracts, and ERC-20 transfers to the protocol treasury addresses, covering Ethereum, Avalanche, and Polygon
- **External data**: End-of-day price feeds and asset metadata for decimal normalization

## 3. Step-by-step calculation

### Component A: Reserve factor tracking

- **Purpose**: Track the reserve factor for each asset in Aave V2 markets
- **Logic**: `ReserveInitialized` events from `LendingPoolConfigurator` and `AMMLendingPoolConfigurator` contracts are parsed to identify active Aave V2 markets and their underlying assets. `ReserveFactorChanged` events from `LendingPoolConfigurator` contracts are monitored to capture changes in the reserve factor for each asset. The reserve factor values are normalized by dividing by 10,000 and filled forward daily to maintain a continuous record of the protocol's fee-share percentage for each asset.
- **Key fields**: `block_timestamp` (timing), `asset_address` (underlying asset address), `reserve_factor` (reserve factor value)

### Component B: Interest-based supply-side fee calculation

- **Purpose**: Calculate the supply-side portion of interest fees
- **Logic**: ERC-20 transfers representing minted interest fees are identified where the recipient is the designated treasury address for Ethereum, Avalanche, or Polygon, and the sender is the null address. Transactions identified as treasury management or denylisted swapper withdrawals are excluded using a predefined denylist. Because these transfers represent the protocol's revenue (the reserve factor share), the total interest is reconstructed, and the supply-side share is calculated as `revenue / reserve_factor * (1 - reserve_factor)`. If the reserve factor is zero, the supply-side fee is set to zero.
- **Key fields**: `block_timestamp` (timing), `asset_address` (asset address), `amount` (minted fee amount)

### Component C: Flash loan supply-side fee allocation

- **Purpose**: Calculate the supply-side portion of flash loan premiums
- **Logic**: `FlashLoan` events from `LendingPool` contracts are parsed to extract the premium paid by borrowers. A fixed protocol fee split of 0.04% is applied to the total premium. The remaining 99.96% of the premium is allocated to the supply side, calculated as `premium_amount * (1 - 0.0004)`.
- **Key fields**: `block_timestamp` (timing), `asset_address` (borrowed asset address), `amount` (premium amount)

### Component D: USD conversion and aggregation

- **Purpose**: Normalize supply-side fees and convert them to USD
- **Logic**: The calculated supply-side fees from interest and flash loans are combined. The raw asset amounts are normalized by their respective decimal precision using asset metadata. The normalized amounts are then multiplied by end-of-day asset prices to convert them to USD, aggregated daily, and zero-filled for days with no activity.
- **Key fields**: `timestamp` (day), `fees_supply_side` (calculated supply-side fees), `price_usd` (end-of-day asset price)

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

Portion of fees distributed to service providers or supply-side participants.

Supply-side fees

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

Supply-side fees

Supply-side fees

Chain breakdown