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.

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Aave | Data breakdown

# Aave Earnings Methodology

## 1. Overview

Earnings measures the net value a project retains after subtracting all expenses from its revenue. This includes cost of revenue, token incentives, and operating expenses, where applicable. Revenue is generated from interest rate spreads, flash loan fees, liquidation protocol shares, GHO stability module fees, treasury yield, Chainlink Smart Value Recapture (SVR), and Velora positive slippage. Expenses are comprised of token incentives distributed to users and safety module rewards. On-chain profitability is reflected by this metric across various deployments, including Aave V2, Aave V3, and Aave V4.

## 2. Data sources

- **Blockchain events**: `Mint` and `Burn` events from `VToken` and `TokenBase` contracts, `FlashLoan` events from `LendingPool` and `FlashLoanLogic` contracts, `LiquidationCall` events from `LendingPool`, `LiquidationLogic`, and `Spoke` contracts, `ReserveDataUpdated` and `PoolLogic_ReserveDataUpdated` events from `LendingPool` and `PoolLogic` contracts, `MintedToTreasury` events from `LendingPool` contracts, `RewardsClaimed` events from `IncentivesController`, `stkAAVE`, `stkAAVEwstETHBPTv2`, `stkABPT`, and `Aave Staked GHO (Ethereum)` contracts, `UpdateAsset`, `UpdateAssetConfig`, and `MintFeeShares` events from Aave V4 Hub contracts, and `AddAsset` and `AddReserve` events from Aave V4 Hub and Spoke contracts, plus ERC-20 `Transfer` events and native asset transfers, covering Ethereum, Arbitrum, Avalanche, Base, and 13 other chains
- **External data**: End-of-day price feeds and asset metadata

## 3. Step-by-step calculation

### Component A: Interest revenue calculation

- **Purpose**: Calculate the protocol's share of interest accrued from active loans.
- **Logic**: For Aave V2 and Aave V3 (EVM), daily interest revenue is calculated by tracking the change in cumulative treasury accruals (retrieved from state snapshots or reconstructed from events on Monad) and adding treasury mints from `MintedToTreasury` events. For Aave V3 (Aptos), interest is calculated by multiplying the daily change in the variable borrow index (from `ReserveDataUpdated` events) by the cumulative variable debt balance (derived from `Mint` and `Burn` events from `TokenBase` contracts). For Aave V4, interest revenue is calculated from the daily delta of accrued fees (from `UpdateAsset` events) plus minted fee shares (from `MintFeeShares` events). The protocol's share is determined by multiplying the total accrued interest by the reserve factor (retrieved from `ReserveFactorChanged` or `UpdateAssetConfig` events).

### Component B: Flash loan fee extraction

- **Purpose**: Capture the protocol's share of fees generated from flash loans.
- **Logic**: Flash loan premium amounts are extracted from `FlashLoan` events emitted by `LendingPool` and `FlashLoanLogic` contracts. The protocol's revenue is calculated by applying a fixed fee split of 0.04% (0.0004) to the total flash loan volume.

### Component C: Liquidation protocol fee calculation

- **Purpose**: Calculate the protocol's share of liquidation penalties.
- **Logic**: For Aave V3 (EVM), liquidation protocol fees are captured by tracking ERC-20 transfers of collateral assets from liquidated users to the treasury address, matched with `LiquidationCall` events. For Aave V3 (Aptos), the protocol's share is calculated by multiplying the liquidated collateral amount by the liquidation protocol fee factor (retrieved from reserve configuration bitmaps or fee change events). For Aave V4, the protocol fee is calculated in collateral units using the ratio of protocol shares to total shares liquidated, derived from `LiquidationCall` events on Spoke contracts.

### Component D: Ancillary revenue tracking

- **Purpose**: Capture revenue from GHO stability modules, Chainlink SVR, and Velora positive slippage.
- **Logic**: GHO stability module fees are calculated by tracking net GHO transfers to and from stability module contracts. Chainlink Smart Value Recapture (SVR) revenue is captured by tracking native ETH transfers from the Chainlink SVR Gnosis Safe to the Aave Collector contract. Velora positive slippage revenue is captured by tracking ERC-20 and native ETH transfers from Velora Fee Claimer contracts to Aave Collector contracts.

### Component E: Treasury yield calculation

- **Purpose**: Calculate interest earned on treasury-held aTokens.
- **Logic**: Daily yield is calculated by multiplying the treasury's previous day's total scaled balance (the sum of real scaled balances from mint, burn, and transfer events and virtual balances from pending treasury accruals) by the daily change in the liquidity index.

### Component F: Expense tracking

- **Purpose**: Calculate total protocol expenses from token incentives and safety module rewards.
- **Logic**: Token incentives are extracted from `RewardsClaimed` events from `IncentivesController` contracts and direct treasury transfers to Angle distribution contracts. Safety module rewards are extracted from `RewardsClaimed` events from safety module contracts, including `stkAAVE`, `stkAAVEwstETHBPTv2`, `stkABPT`, and `Aave Staked GHO (Ethereum)`.

### Component G: USD conversion and final earnings aggregation

- **Purpose**: Normalize all revenue and expense components to USD and calculate net earnings.
- **Logic**: All extracted asset amounts are normalized by their decimal precision and converted to USD using end-of-day price feeds. Total daily revenue is calculated as the sum of interest revenue, flash loan revenue, liquidation protocol fees, GHO stability module fees, Chainlink SVR revenue, Velora slippage revenue, and treasury yield. Total daily expenses are calculated as the sum of token incentives and safety module rewards. Daily earnings are calculated by subtracting total daily expenses from total daily revenue.

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

Net profit (also profits, net income, profitability) — revenue remaining after subtracting expenses.

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