Aave V3’s liquidity rate is the rate used to accrue supplier interest; its variable borrow rate accrues borrower debt. In the pinned V3.7 default strategy, the liquidity rate equals the variable borrow rate multiplied by supply usage and the portion left after the reserve factor. The gap also reflects idle liquidity, while APR and APY require different compounding assumptions.
A supplier and borrower can therefore see different percentages for the same underlying asset without either quote being wrong. To explain that difference, follow the reserve’s interest allocation before comparing the two screens.
Identify the V3 implementation and the rate field
This guide analyzes Aave V3 Origin release v3.7.0, pinned to commit cff15de6d1271b0c800fc001f4aea4c263e8a597, inspected on 28 October 2026. The official release identifies that version. For an actual position, verify the implementation behind the chosen chain’s Pool; a repository release does not prove that every market has upgraded. These calculations describe V3, and do not import Aave V4 rules.
The pinned reserve data types distinguish the current liquidity rate, current variable borrow rate, liquidity index and variable borrow index. The rates describe accrual speeds. The indices record accumulated growth.
A rate stored in ray uses 27 decimal places. Divide a raw rate by 10²⁷ to obtain its decimal annual rate, then multiply by 100 for a percentage. For example, 75 × 10²⁴ divided by 10²⁷ is 0.075, or 7.5%, before any display conversion to APY. Check the interface’s label instead of assuming every annualized percentage is an APR.
Account risk settings require their own review. The eMode versus isolation mode comparison addresses those version-sensitive account constraints; a rate calculation cannot establish permission to borrow.
Follow borrower interest through two denominators
Use three quantities in the same underlying asset:
- A: available liquidity after the operation’s liquidity additions and removals.
- D: total variable debt at the relevant index.
- F: the reserve deficit included in the supply-rate denominator.
In this pinned default interest rate strategy, borrow usage divides D by the sum of A and D. Supply usage divides D by the sum of A, D and F. The borrow curve uses borrow usage; the liquidity-rate calculation uses supply usage.
The implementation derives A from the virtual underlying balance, plus liquidity added and minus liquidity taken. Substituting an unrelated dashboard’s total value locked or a raw token balance can change the calculation.
Let r_b be the variable borrow APR and f the reserve-factor fraction. The liquidity APR is r_b multiplied by supply usage and by the remaining fraction, (1 − f). With zero deficit, both usage ratios coincide.
When total variable debt is zero, this strategy returns a zero liquidity rate and the base variable borrow rate before evaluating usage ratios. A positive base borrow quote can therefore coexist with zero supplier accrual from this strategy. V3.7 zero-debt branch.
A naming trap matters here. The strategy’s argument is still called unbacked, but the pinned V3.7 reserve update passes the reserve’s deficit into that argument. Reading the argument name alone would miss the actual input.
For the broader kinked-curve explanation, see lending utilization versus borrow APR. Here the important next step is reconciling the rate’s allocation.
Reconcile a constructed six-million-unit reserve
The following example is illustrative, using invented inputs rather than a live Aave market. Assume 1.2 million available units, 4.8 million borrowed units, zero deficit and a 15% reserve factor. All quantities use one hypothetical asset. Exclude incentives, extra income and costs.
Borrow usage is 4.8 million divided by 6 million, or 80%. Suppose the hypothetical curve has an 80% optimal point, a 1.5% base rate and a six-percentage-point first slope. At the optimal point, its borrow APR is 7.5%.
The supply APR is then 7.5% × 80% × 85% = 5.1%.
To understand that result, hold the opening quantities and rates fixed for an annualized allocation calculation:
| Illustrative allocation | Calculation | Annualized units |
|---|---|---|
| Interest charged on borrowed units | 4,800,000 × 7.5% | 360,000 |
| Reserve-factor allocation | 360,000 × 15% | 54,000 |
| Interest allocated to suppliers | 360,000 − 54,000 | 306,000 |
| Supplier rate on six million units | 306,000 / 6,000,000 | 5.1% |
The allocation closes: 54,000 plus 306,000 equals 360,000. This annualized calculation holds rates and opening balances fixed; it is not a forecast or an exact year-long transaction ledger.
The 2.4-percentage-point difference between 7.5% and 5.1% is not a 2.4% protocol fee. Idle capacity accounts for 1.5 points: 7.5% multiplied by the unborrowed 20%. The reserve allocation accounts for another 0.9 point: 7.5% × 80% × 15%.
Likewise, a 15% reserve factor takes 15% of the modeled borrower interest. It does not deduct 15% of supplied principal or subtract 15 percentage points from the borrow APR.
The treasury accounting also needs careful language. In the pinned reserve logic, debt-index growth feeds an accrued treasury amount recorded in scaled terms. The annualized 54,000-unit row explains the allocation; it does not describe an immediate cash transfer of that amount.
Change the allocation without changing the borrow quote
These separate illustrative cases keep available liquidity, debt and the curve unchanged. They isolate reserve-factor and deficit effects; they are not successive events or estimates of an existing reserve.
| Constructed case | Reserve factor | Deficit units | Supply usage | Supply APR |
|---|---|---|---|---|
| Opening case | 15% | 0 | 80.0000% | 5.1000% |
| Higher reserve factor | 25% | 0 | 80.0000% | 4.5000% |
| Deficit in denominator | 15% | 600,000 | 72.7273% | 4.6364% |
All three cases retain 80% borrow usage and a 7.5% borrow APR. In the second case, the annualized reserve allocation becomes 90,000 units and suppliers receive 270,000 units across the stipulated six-million-unit base.
In the third case, supply usage is 4.8 million divided by 6.6 million. Multiplying 7.5% by that ratio and by 85% produces approximately 4.6364%. The extra 600,000 changes the supply denominator while leaving this example’s borrow denominator unchanged.
A deficit is not additional withdrawable cash. This calculation only explains its effect on the rate formula; it does not establish how a deficit arose, how it will be covered, or that every supplier claim can be redeemed immediately.
Separate the APR quote from the index calculation
APR is an annualized rate input. APY includes a specified compounding convention. The APR versus APY guide explains that general distinction, but staking payout assumptions cannot replace lending-contract arithmetic.
For example, applying monthly compounding to a constant 5.1% nominal APR gives about 5.2209% APY. That is a mathematical convention, not evidence that a V3 position follows a monthly reinvestment schedule. A screenshot’s APY requires its own conversion methodology and timestamp.
The pinned V3.7 interest mathematics uses a 365-day year. Its liquidity factor is linear over an interval. Its variable-debt factor uses a cubic approximation to exponential growth.
Consider a separate illustrative 30-day interval with no intervening index update, no flows and constant stored rates of 5.1% and 7.5%. Start each index at 1. For readability, use decimal arithmetic before raw-token rounding.
The liquidity factor is 1 plus 0.051 multiplied by 30/365. For debt, set x to 0.075 multiplied by 30/365; the cubic factor is 1 + x + x²/2 + x³/6.
| Illustrative measurement | Supplier side | Variable borrower side |
|---|---|---|
| Stored APR | 5.1% | 7.5% |
| Thirty-day index factor | 1.004191780822 | 1.006183422415 |
| Interest per 10,000 opening units | 41.917808 | 61.834224 |
A simple-interest estimate for the borrower would give 61.643836 units. Using unrounded values, it is about 0.190389 units below the cubic calculation. That difference comes from accrual mathematics.
These equal-sized positions are a comparison device, not the whole reserve’s balance sheet. Intermediate updates, changing rates and token rounding alter a real history. The repayment amount versus accrued debt guide connects those index changes to the amount needed when repaying.
Build a rate reconciliation that survives a dashboard mismatch
Save the chain, Pool, underlying asset contract, block number and timestamp first. Then retain the implementation, strategy address, curve parameters, reserve factor, virtual balance, deficit, total variable debt and both indices. A symbol such as USDC alone does not identify a reserve.
Use this sequence to check one observation:
- Reconstruct available liquidity, including the operation’s additions or removals.
- Calculate borrow usage and supply usage separately.
- Reproduce the borrow curve output, then the liquidity-rate allocation.
- Compare raw annual rates before applying the interface’s APY conversion.
- Reconcile one interval using the correct indices, timestamps and dated flows.
Three failures can otherwise look like a broken formula. First, mixing blocks can pair a new debt balance with an old rate. Second, a reward-adjusted percentage can combine token incentives with protocol interest; keep reward quantities and valuation assumptions in a separate ledger. Third, accrued supplier interest does not prove that enough underlying cash is available for an immediate withdrawal. Aave’s V3 overview makes available liquidity and account collateralization relevant to withdrawal.
A useful mismatch report contains the exact reserve, block, raw inputs, reproduced rates and interface conversion. With those fields, another reader can identify whether the discrepancy comes from utilization, reserves, deficit accounting or annualization before extending any percentage across a holding period.