Liquidity providers deposit funds into Merkle Trade and receive trading fees from traders (supply-side fees).

Merkle Trade is a non-custodial perpetual exchange protocol built on Aptos.

MKL tokenholders own and govern the protocol. They do currently take a cut of the total trading fees paid by traders (revenue). Merkle Trade's investors include Arrington Capital, Hashed, etc.

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Merkle Trade

# Merkle Trade Earnings Methodology

## 1. Overview

The MerkleTrace earnings metric represents the protocol's net profit calculated as total revenue minus total expenses. This metric answers the fundamental business question: "How much profit is MerkleTrace generating after accounting for all operating costs and token incentives?" The calculation follows standard financial accounting principles by subtracting all protocol expenses from gross revenue to arrive at net earnings.

## 2. Data sources

The earnings calculation relies on several core data sources from the Aptos blockchain:

- **Fee distribution events**: Parsed Aptos `FeeDistributor_DepositFeeEvent_event` logs that capture protocol fees split between liquidity providers, stakers, and development funds, all denominated in lzUSDC
- **Referral rebate events**: Parsed Aptos `Referral_RebateEvent_event` logs that track fee rebates paid to users as part of the referral program, denominated in lzUSDC  
- **Token incentive events**: Parsed Aptos `MklToken_MklClaimEvent_event` logs that capture MKL token distributions from the community pool
- **Token price feeds**: End-of-day price feeds for USD conversion of MKL token incentives
- **Token metadata**: Decimal precision data for proper amount normalization

## 3. Step-by-step calculation

### Component A: Fee distribution tracking
- **Purpose**: Captures protocol fees and their allocation across different recipients
- **Logic**: Extracts fee distribution events from Aptos blockchain logs, specifically targeting the `FeeDistributor_DepositFeeEvent_event`. Each event contains three amounts: `lp_amount` (fees to liquidity providers), `stake_amount` (fees to stakers), and `dev_amount` (fees to development fund). All fees are paid in lzUSDC, which serves as the primary collateral token for MerkleTrace. Events are filtered and aggregated by day, chain, and token address.
- **Key fields**: `lp_amount`, `stake_amount`, `dev_amount` representing fee allocations, `token_address` identifying lzUSDC, `block_timestamp` for daily aggregation

### Component B: Referral rebate tracking  
- **Purpose**: Captures fee rebates paid to users through the referral program
- **Logic**: Extracts referral rebate events from `Referral_RebateEvent_event` logs on Aptos. Each event represents a rebate payment made to users, reducing the protocol's net revenue. Rebates are denominated in lzUSDC and aggregated daily. These amounts represent a cost to the protocol as they are fees that could have been retained but were instead redistributed to users.
- **Key fields**: `rebate` amount paid to users, `token_address` for lzUSDC, `block_timestamp` for daily aggregation

### Component C: Token incentive tracking
- **Purpose**: Captures MKL token distributions from the community incentive pool
- **Logic**: Extracts MKL token claim events from `MklToken_MklClaimEvent_event` logs, specifically filtering for `COMMUNITY_POOL` claims. These represent token incentives distributed to users and constitute a direct expense to the protocol. Events are aggregated daily and amounts are converted from MKL token quantities to USD values using end-of-day price feeds.
- **Key fields**: `mkl_amount` representing token quantities distributed, `pool_type` filtered to `COMMUNITY_POOL`, `token_address` for MKL token identification

### Component D: Revenue calculation
- **Purpose**: Calculates total protocol revenue from all fee-generating activities
- **Logic**: Combines revenue from two sources: protocol fees retained from fee distributions (`dev_amount` + `stake_amount`) and referral rebates (which are treated as negative revenue since they reduce net income). Both components are denominated in lzUSDC, converted to USD using end-of-day price feeds, and aggregated daily. The `lp_amount` from fee distributions is excluded from revenue as it represents fees passed through to liquidity providers.
- **Key fields**: Combined `dev_amount` and `stake_amount` as protocol-retained fees, `rebate` amounts as revenue adjustments

### Component E: Operating expenses calculation
- **Purpose**: Calculates protocol operating costs excluding token incentives
- **Logic**: Sums the `dev_amount` from fee distributions (representing development fund allocations) and all referral rebate amounts. These represent the protocol's direct operating costs paid in lzUSDC. Amounts are converted to USD and aggregated daily.
- **Key fields**: `dev_amount` as development expenses, `rebate` amounts as user acquisition costs

### Component F: Token incentives calculation  
- **Purpose**: Calculates the USD value of MKL tokens distributed as incentives
- **Logic**: Aggregates all MKL community pool claims daily, converts token quantities to USD using end-of-day MKL price feeds, and applies decimal corrections. This represents the protocol's token-based user acquisition and retention costs.
- **Key fields**: `mkl_amount` converted to USD value using price feeds and decimal corrections

### Final aggregation
- **Combining components**: Total expenses are calculated by summing operating expenses and token incentives. Revenue and expenses are combined using the earnings formula: Revenue - Total Expenses = Earnings. All components are joined on timestamp, chain, and product dimensions.
- **Currency conversion**: All native token amounts are converted to USD using end-of-day price feeds through the `convert_to_usd_and_correct_decimals` macro, which handles both decimal normalization and USD conversion
- **Time aggregation**: All data is truncated to daily boundaries using timestamp truncation, with events grouped by day for consistent temporal alignment
- **Final calculation**: The final earnings value represents the protocol's daily net profit, calculated as total revenue (protocol fees minus rebates) minus total expenses (operating costs plus token incentives), expressed in USD

*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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