Reserve Factor (Lending)
A percentage of interest retained by a lending protocol to fund operations or cover losses.
What is Reserve Factor (Lending)?
Reserve factor is the portion of borrow interest diverted to a protocol’s treasury, typically 10–20%. For example, if Compound’s borrow rate is 8% and the reserve factor is 15%, 1.2% goes to reserves. These funds cover operational costs, insurance, or governance incentives. Aave’s reserve factor for USDC was 10% in 2025, per protocol data.
Reserves ensure protocol sustainability, especially during defaults or hacks. In 2024, Compound’s reserves mitigated $10 million in losses from a minor exploit, highlighting their role in protocol resilience.
Related Terms
veToken
A vote-escrowed digital asset in DeFi, representing locked tokens that grant governance rights and enhanced rewards in exchange for reduced liquidity.
Reputation System
A mechanism that rewards prediction market participants with non-financial incentives, like tokens, for accurate forecasts.
Money Markets
Financial markets for short-term borrowing and lending, typically under one year, involving instruments like repos, commercial paper, and CDs.
Mainnet
The primary, public blockchain network where real-world transactions and digital assets are processed.
Pool Depth (DEX)
The total value of digital assets in a DEX liquidity pool, determining its ability to handle trades with minimal price impact.
Liquidity Pool (DEX)
A liquidity pool is a smart contract on a decentralized exchange (DEX) that holds a pair of tokens, enabling automated trading and liquidity provision without traditional order books.