Share Tracking Quirks

Variable compound interest rates The Interest Rate varies block by block. The share system does not take this into account. This leads to a slightly unfair distribution.

Extreme Scenario:

1. Time = 0, Rate = 50% : Alice deposits 10 ETH

2. Time = 1, Rate = 10% : Bob deposits 10 ETH

   • Before Bob’s deposit the pool is at 15 ETH, Alice deserves 5ETH

   • After Bob’s deposit the pool is at 25 ETH, but now earning 10%.

3. Time = 2, : Alice + Bob withdraws.

   • Total in pool: 27.5 ETH

   • Total in interest to distribute: 27.5 - 10*2 = 7.5

   • Using proposed mechanism:

     • Alice gets ⅔ of the 7.5 = 5

     • Bob gets ⅓ of the 7.5 = 2.5

   • With a 100% fair system:

     • Alice deserves 5 + 1.5 = 6.5

     • Bob deserves 1

Conclusion: While this was an extreme scenario, rates do fluctuate and this is something to take into consideration. Because the calculations for a 100% fair system are computationally expensive and protecting user’s privacy increases the complexity, we believe that this margin of error is acceptable, at least for now in Version 1.

This also obscures the true interest rates that the user would receive from Aave and can be seen as a positive quirk to further improve privacy by making it hard for an outside observer to calculate yield using Aave’s interest rates