Protocol Fees#

Overview#

Coalesce Finance charges fees on interest accrued, not on principal. Fees are an additional charge to the borrower and do not reduce the interest lenders earn.

Fee Structure#

Fees accrue from each interest step (not as a single end-of-loan calculation):

interest_delta_wad = new_scale_factor × WAD / scale_factor - WAD
fee_delta_wad = interest_delta_wad × fee_rate_bps / BPS
fee_normalized = scaled_total_supply × scale_factor / WAD × fee_delta_wad / WAD

interest_delta_wad is derived from the ratio of the post-accrual scale factor to the pre-accrual scale factor. This captures the full interest growth for the accrual period, including compound effects from daily compounding.

The fee computation uses the pre-accrual scale_factor to value the principal base, since fees represent a fraction of the interest delta for that accrual step.

Example#

Lender deposits: 10,000 USDC
Interest rate: 8% APR
Term: 1 year
Protocol fee: 10% of interest

Lender interest (daily compounding): 10,000 × (1.08328 - 1) ≈ 832.78 USDC
Protocol fee (approximate): 832.78 × 10% ≈ 83.28 USDC
Total borrower obligation: 10,000 + 832.78 + 83.28 ≈ 10,916.05 USDC

Lender receives the full ≈832.78 USDC interest (8% APR, daily compounding).
The protocol fee is a separate charge to the borrower.

The current fee rate is set in the protocol configuration and visible on-chain.

How Fees Work#

Fees accrue alongside interest on each transaction. They are tracked internally but not transferred until explicitly collected by the protocol's fee authority.

Lender claims are senior to protocol fees. At settlement and withdrawal, the full vault balance is available to lenders — fees are not reserved or subtracted. Fee collection is only permitted after lenders are fully covered:

During market distress (settlement factor < 100%), fee collection is blocked entirely.
While lenders still have pending withdrawals, fee collection is blocked unless the market is fully solvent.
When lenders still have claims, fee withdrawals are capped to the vault surplus above total lender obligations.

This ensures lenders receive their principal and interest before the protocol collects any fees, including in borrower default scenarios.

Impact on Returns#

Fees are charged to the borrower in addition to lender interest. When the borrower fully repays, lenders receive the full market APR. Fees do not reduce lender returns.

In default scenarios, lender recovery is calculated from the full vault balance. Protocol fees are only collected after lenders are fully covered. See Settlement for details.

There are no deposit, withdrawal, borrowing, or repayment fees — only the protocol fee on interest.