# Aave V4 Supply-side fees Methodology

## 1. Overview

Supply-side fees is measured as the share of interest and liquidation fees that is distributed to liquidity providers and liquidators within Aave V4. This metric is critical for assessing the economic incentives provided to supply-side participants who facilitate lending liquidity and maintain system solvency. In Aave V4, these fees are derived from interest paid by borrowers and the liquidation bonuses earned by liquidators during collateral liquidations. All calculated fees are normalized by decimal precision and converted to USD using end-of-day price feeds.

## 2. Data sources

- **Blockchain events**: `UpdateAsset`, `UpdateAssetConfig`, and `MintFeeShares` events from Hub contracts (such as `CoreHub`, `PlusHub`, and `PrimeHub`), and `LiquidationCall` and `AddReserve` events from `Spoke` contracts, covering Ethereum, Avalanche, Optimism, and 2 other chains
- **External data**: End-of-day price feeds and asset metadata

## 3. Step-by-step calculation

### Component A: Aave V4 interest-based supply-side fees

- **Purpose**: Calculates the portion of interest paid by borrowers that is distributed to liquidity providers.
- **Logic**: `UpdateAsset` events are parsed from Hub contracts to extract the daily accrued fees, taking the last event of each day. `MintFeeShares` events are aggregated daily to capture the fees claimed by the treasury, which resets the accrued fees accumulator. Daily protocol revenue is calculated as the sum of the daily change in accrued fees and the minted fees. `UpdateAssetConfig` events are parsed to retrieve the latest liquidity fee (reserve factor) in basis points. Total interest fees are calculated by dividing the daily protocol revenue by the liquidity fee percentage. Supply-side fees are then derived by subtracting the daily protocol revenue from the total interest fees.
- **Key fields**: `accruedFees`, `assets` (minted fees), `liquidityFee` (reserve factor), `assetId`, `hub_address`

### Component B: Aave V4 liquidation-based supply-side fees

- **Purpose**: Calculates the liquidation bonuses earned by liquidators during collateral liquidations.
- **Logic**: `LiquidationCall` events are parsed from `Spoke` contracts to extract the liquidated collateral amount, debt restored, collateral shares liquidated, and collateral shares sent to the liquidator. Spoke-local reserve IDs are mapped to underlying assets using `AddReserve` events from `Spoke` contracts and `AddAsset` events from Hub contracts. Protocol revenue from liquidations is calculated as the liquidated collateral amount multiplied by the ratio of protocol shares (total shares liquidated minus shares sent to the liquidator) to total shares liquidated. The fair collateral value of the debt is calculated by converting the debt restored into collateral units using end-of-day USD prices of both assets. The total liquidation bonus is calculated as the liquidated collateral amount minus the fair collateral value. Supply-side fees are determined by subtracting the protocol revenue from the total liquidation bonus, with the result floored at zero.
- **Key fields**: `collateralAmountRemoved`, `debtAmountRestored`, `collateralSharesLiquidated`, `collateralSharesToLiquidator`, `collateralReserveId`, `debtReserveId`, `spoke_address`

### Component C: Normalization and USD conversion

- **Purpose**: Normalizes asset amounts by decimal precision and converts them to USD.
- **Logic**: Supply-side fees from interest and liquidations are aggregated daily by asset and chain. Asset amounts are normalized by decimal precision using asset metadata. The normalized amounts are multiplied by end-of-day asset prices to convert the values to USD. Daily values are aggregated with UTC day boundaries.
- **Key fields**: `timestamp`, `chain_id`, `token_address`, `fees_supply_side`

*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 V4

Supply-side fees

Supply-side fees

Chain breakdown