Grove borrows via Sky's Allocator Module and deploys capital into curated yield strategies through an ALM (Asset-Liability Management) controller architecture. The protocol generates yield across its positions while management fees are settled off-chain via a Monthly Settlement Cycle between Grove and Sky DAO.

Grove operates as a programmable capital allocator that draws stablecoins from Sky Protocol and deploys them into diversified institutional-grade yield-bearing positions spanning tokenized treasuries, private credit, DeFi lending markets, and curated vaults across multiple chains.

Grove is a DeFi protocol built on Sky (formerly MakerDAO) infrastructure, incubated by Grove Labs and managed by Steakhouse Financial as risk curator.

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# grove Earnings Methodology

## 1. Overview

Earnings measures the net profitability of grove by calculating the difference between total revenue and operating expenses. Revenue is comprised of yield accrued on held assets and incentives claimed through Merkl. Expenses consist of cost of revenue, which represents the funding costs recognized on the Sky debt path for specific collateral types. This metric provides a comprehensive view of the protocol's realized and accrued financial performance across its various yield-generating strategies.

## 2. Data sources

- **Blockchain events**: `Claimed` events from `Distributor` contracts, covering Ethereum.
- **Blockchain functions**: `drip` and `grab` functions from `Jug` and `Vat` contracts, covering Ethereum.
- **On-chain state**: Daily asset balances and normalized yield indices, covering Ethereum, Base, Avalanche, and Monad.
- **External data**: End-of-day price feeds for held assets and incentive rewards.

## 3. Step-by-step calculation

### Component A: Yield revenue accrual

- **Purpose**: To calculate the daily interest earned on assets held within grove strategies.
- **Logic**: Daily end-of-day balances are reconstructed for all held assets by aggregating net token flows. Normalized yield indices are retrieved from on-chain state for each yield-bearing asset. Daily yield is calculated by applying the percentage change in the yield index to the daily asset balance.

### Component B: Incentive revenue collection

- **Purpose**: To capture additional revenue generated through external incentive programs.
- **Logic**: `Claimed` events from `Distributor` contracts are parsed to identify reward distributions routed through Merkl to grove-controlled addresses. Claimed amounts are normalized by decimal precision and mapped to the underlying yield-generating positions.

### Component C: Cost of revenue recognition

- **Purpose**: To calculate the funding expenses associated with the Sky debt path.
- **Logic**: Funding costs are recognized for the `ALLOCATOR-BLOOM-A` collateral type. `drip` functions from `Jug` contracts are parsed to track rate changes, while `grab` functions from `Vat` contracts are parsed to identify debt increases. A settlement correction is applied by adjusting the debt increase by the net USDS transfers to or from the grove subproxy address within the same transaction.

### Component D: Final aggregation and USD conversion

- **Purpose**: To combine revenue and expense components into a final earnings value.
- **Logic**: Total revenue is calculated as the sum of yield revenue and incentive revenue. Total expenses are calculated as the sum of cost of revenue and token incentives (currently set to zero). Earnings is determined by subtracting total expenses from total revenue. All native asset amounts are converted to USD using end-of-day price feeds and aggregated to a daily granularity.

*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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