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
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HTTP 402 Payment / x402 Protocol
A standardized HTTP response code and protocol for requesting and processing digital asset payments.
Long Position
A trade betting on the price increase of a digital asset.
Liquid Staking
A staking mechanism on Ethereum where users receive derivative tokens representing their staked ETH, allowing them to use these tokens in DeFi activities while earning staking rewards.
Ethereum Wallet
A software or hardware tool that manages Ethereum accounts, enabling users to store, send, and receive ETH or tokens.
Perpetual Swap
Also called Perpetual Futures, a derivative contract allowing traders to speculate on digital asset prices without an expiration date.