# Constant Product Expenses Methodology

## 1. Overview

Expenses measures the total cost incurred by Shadow to operate its business, specifically focusing on liquidity provider incentives for the Constant Product. These costs represent token emissions distributed to participants to bootstrap and maintain liquidity within the protocol's V2 liquidity pools. All expenses are captured as token incentives, denominated in the native reward asset, and converted to USD to reflect the protocol's operational expenditure.

## 2. Data sources

- **Blockchain events**: `ClaimRewards` events from `Gauge` contracts, covering Sonic
- **External data**: End-of-day price feeds and asset metadata

## 3. Step-by-step calculation

### Component A: Constant Product reward extraction

- **Purpose**: Captures the value of token incentives distributed to liquidity providers.
- **Logic**: `ClaimRewards` events are parsed from `Gauge` contracts on the Sonic network. The data is filtered to isolate rewards associated with the Constant Product. Only events involving the `xShadow` reward asset are included, as these represent the protocol's primary emission-based expense. The raw reward quantity is extracted from the `amount` field for each distinct transaction.
- **Key fields**: `amount` (reward quantity), `token_address` (reward asset identification), `block_timestamp` (timing)

### Component B: USD conversion and aggregation

- **Purpose**: Normalizes reward values and converts them to a primary currency for reporting.
- **Logic**: Raw reward amounts are normalized by decimal precision using asset metadata. These normalized values are multiplied by end-of-day price feeds for the `xShadow` asset to determine the USD value at the time of distribution. The resulting values are aggregated into daily totals using UTC day boundaries and categorized under the Constant Product.
- **Key fields**: `token_incentives` (calculated USD value)

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

Total project operating and incentive expenses.

Expenses