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Lending Protocols

All three lending protocols on Gnosis Chain (Agave, Aave V3, Spark) share the same core mechanics derived from the Aave codebase. This page covers the shared concepts; individual protocol pages detail contract addresses, dbt models, and specific features.

How Lending Pools Work

  1. Supply — Users deposit assets into the pool and receive aTokens (interest-bearing ERC-20 tokens whose balance grows over time).
  2. Borrow — Users borrow against their collateral up to the Loan-to-Value (LTV) ratio. Outstanding borrows are tracked via variableDebtTokens.
  3. Repay — Borrowers repay debt plus accrued interest.
  4. Withdraw — Suppliers redeem aTokens for the underlying asset plus earned interest.
  5. Liquidation — If a borrower's health factor drops below 1, anyone can repay part of their debt and seize collateral at a discount.

Health Factor

\[ \text{Health Factor} = \frac{\sum(\text{collateral}_i \times \text{liquidation threshold}_i)}{\text{total debt in base currency}} \]
  • HF > 1: Position is safe
  • HF < 1: Position is liquidatable

The liquidation threshold is per-asset (e.g., WETH might be 82.5%).

Interest Rate Model

All three protocols use a piecewise linear ("kink") model:

\[ U = \frac{\text{total borrows}}{\text{total liquidity}} \]

If \(U \leq U_{opt}\):

\[ \text{variableBorrowRate} = \text{baseRate} + \text{slope}_1 \times \frac{U}{U_{opt}} \]

If \(U > U_{opt}\):

\[ \text{variableBorrowRate} = \text{baseRate} + \text{slope}_1 + \text{slope}_2 \times \frac{U - U_{opt}}{1 - U_{opt}} \]
\[ \text{liquidityRate} = \text{variableBorrowRate} \times U \times (1 - \text{reserveFactor}) \]

Typical parameters: \(U_{opt} = 80\%\), \(\text{slope}_1 = 4\%\), \(\text{slope}_2 = 100\%\), \(\text{baseRate} = 0\text{–}2\%\)

The steep \(\text{slope}_2\) intentionally punishes over-utilization to protect liquidity providers. The reserveFactor is the fraction of interest revenue sent to the protocol treasury.

Units and Conversions

Value Storage Format Conversion
Rates (liquidityRate, variableBorrowRate, stableBorrowRate) RAY = 1e27 APR = rate / 1e27
RAY APR → APY — \((1 + \text{rate} / 1e27 / \text{seconds per year})^{\text{seconds per year}} - 1\)
Indexes (liquidityIndex, variableBorrowIndex) RAY = 1e27 Divide by 1e27
Token amounts Token wei Divide by \(10^{\text{decimals}}\) for human-readable

Key Event Types

All three lending protocols emit these core events (Agave uses Deposit, Aave V3/Spark use Supply):

Event Description Key decoded_params Fields
Deposit / Supply User supplies assets reserve, user, onBehalfOf, amount
Withdraw User redeems supply reserve, user, to, amount
Borrow User opens a borrow reserve, user, amount, borrowRateMode, borrowRate
Repay User repays debt reserve, user, repayer, amount
LiquidationCall Position liquidated collateralAsset, debtAsset, user, debtToCover, liquidatedCollateralAmount, liquidator
ReserveDataUpdated Interest rates updated reserve, liquidityRate, stableBorrowRate, variableBorrowRate, liquidityIndex, variableBorrowIndex

Protocol Pages

  • Agave — Aave V2 fork by 1Hive
  • Aave V3 — Aave V3 with E-Mode, Isolation Mode, Siloed Borrowing
  • Spark — Aave V3 fork by MakerDAO/Sky

See Also