💸Protocol Fees & Revenue
Last updated
Last updated
As a decentralized lending and borrowing protocol, Bonzo Finance is committed to creating a robust and economically sustainable ecosystem that benefits all stakeholders. The protocol’s fee structure is designed to ensure the long-term viability of the protocol while providing attractive opportunities for target user personas.
At the core of Bonzo Finance's revenue model are four key fee types: Reserve Factor Fee, Liquidation Fee, Stability Fee, and Flash Loan Fee. These fees are carefully calibrated to maintain the protocol's financial stability, mitigate risks associated with volatile assets, and cover the costs of platform operations and development.
As the protocol matures and adoption grows, revenue generated through the fees cited below will be used to support a variety of initiatives, such as platform enhancements, liquidity incentives, and community grants. By reinvesting in the ecosystem and fostering a strong community of stakeholders, Bonzo Finance is laying the foundation for long-term success and economic sustainability.
The strongest metric correlated with fee revenue for protocols based on Aave v2 is the "Total Borrows" or "Total Value Borrowed" metric. This metric represents the total value of assets borrowed from the protocol at any given time. As the total borrows increase, the protocol earns more interest through fees, leading to higher revenue.
Users taking out overcollateralized loans on Bonzo Finance (with stable & variable interest rates determined by the protocol’s asset markets) are charged a Reserve Factor Fee and Stability Fee, as described below.
Additionally, through the use of uncollateralized “atomic transaction” flash loans, users are charged a Flash Loan Fee as a fixed percentage on the total value of borrowed assets.
The borrowing volume or the total amount of loans originated is the most relevant metric that aligns with Bonzo Finance’s primary fee structure and is the best indicator of the protocol's revenue. While other health metrics like the total value locked (TVL) or the number of active users provide insights into the platform's adoption and liquidity, they do not directly correlate with revenue generation.
The following table aggregates FY2021 key health metrics for Aave v2. In particular, the utilization % and fee % metrics will remain constant regardless of the values found in the TVL and Borrowed columns. FY2021 financial data was chosen because Aave v2 was released in December of 2020 and was the most utilized version of Aave during the FY2021 - FY2022 time period.
This allows for transposing of these rates into a revenue projection model — which includes Bonzo Finance’s conservative estimates for TVL and Borrowed values — to output estimated fee revenue for the protocol during year 1 operations, found in the subsequent section.
