# Hydration Lending Supply-side fees Methodology

## 1. Overview

Supply-side fees measures the portion of interest and liquidation penalties generated within Hydration Lending that is distributed to liquidity providers (lenders) and liquidators. This metric reflects the primary economic incentive for users to supply assets to the protocol. For the HOLLAR stability module, a specific percentage of fees is allocated to the supply-side, while interest accruals on HOLLAR debt are retained by the protocol or neutralized due to the self-custody nature of the asset.

## 2. Data sources

- **Blockchain events**: `ReserveFactorChanged` and `LiquidationProtocolFeeChanged` events from `LendingPoolConfigurator` contracts, `MintedToTreasury`, `LiquidationCall`, and `ReserveDataUpdated` events from `LendingPool` contracts, `Mint` and `Burn` events from `VToken` contracts, and ERC-20 token transfers, covering Hydration Substrate.
- **External data**: End-of-day price feeds for native assets and metadata for asset decimal precision.

## 3. Step-by-step calculation

### Component A: Hydration Lending interest distribution

- **Purpose**: Calculate the share of interest paid by borrowers that is distributed to lenders.
- **Logic**: Daily protocol revenue is first determined using internal state feeds for treasury accruals and `MintedToTreasury` events from `LendingPool` contracts. The total interest generated is back-calculated by dividing this revenue by the active `reserve_factor` (retrieved from `ReserveFactorChanged` events). Supply-side fees are then calculated by multiplying the total interest by the lender's share, defined as `1 - reserve_factor`.
- **Key fields**: `amountMinted`, `treasury_accruals`, `reserve_factor`.

### Component B: Hydration Lending liquidation allocations

- **Purpose**: Capture the portion of liquidation penalties that serves as an incentive for supply-side participants.
- **Logic**: Liquidation transactions are identified through `LiquidationCall` events from `LendingPool` contracts. Associated ERC-20 transfers from the liquidated user to the protocol treasury are tracked to determine the protocol's fee take. The total liquidation fee is reconstructed using the `liquidation_factor` (retrieved from `LiquidationProtocolFeeChanged` events), and the supply-side portion is calculated as the value remaining after the protocol's share is deducted.
- **Key fields**: `amount` (transferred value), `liquidation_factor`.

### Component C: HOLLAR stability module and debt interest

- **Purpose**: Calculate supply-side incentives related to the HOLLAR stablecoin.
- **Logic**: For the HOLLAR stability module, incoming and outgoing transfers are monitored. Supply-side fees are calculated as a fixed 20% allocation of the net fee flows to the module. Regarding HOLLAR debt interest, interest accruals are calculated based on the change in the `variable_borrow_index` from `ReserveDataUpdated` events and the cumulative balance of `Mint` and `Burn` events from `VToken` contracts; however, the supply-side share for these accruals is currently set to zero.
- **Key fields**: `amount` (transfers), `variableBorrowIndex`, `liquidityIndex`.

### Component D: Normalization and USD conversion

- **Purpose**: Standardize fee values across different assets and timeframes.
- **Logic**: All extracted fee amounts are normalized by their respective asset decimal precision. These normalized values are then multiplied by end-of-day price feeds to calculate the USD equivalent. Values are aggregated to a daily granularity using UTC day boundaries.
- **Key fields**: `price_usd`, `decimals`.

*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

Collators aggregate parachain transactions block candidates and producing state transition proofs for validators based on those blocks.

Hydration is a Polkadot parachain specialized in trading, lending, and stablecoin issuance.

HDX holders own and govern the protocol. Hydration’s investors include KR1 plc, Hypersphere, etc.

Hydration Lending

Supply-side fees

Supply-side fees

Chain breakdown