Fee Structure

Lend position: $100,000 at 8% for 1 year
  Interest earned: $8,000
  Protocol fee: $8,000 × 0.1% = $8
  Net interest: $7,992

Borrow position: $100,000 at 7% for 1 year
  Interest paid: $7,000
  Protocol fee: $7,000 × 0.1% = $7
  Total cost: $7,007

Minimum profitable spread:

Protocol fee on lend: 0.1% of interest
Protocol fee on borrow: 0.1% of interest
Total fee overhead: ~0.2% of interest

At 8% APY:
  0.2% of 8% = 0.016% (1.6 bps)

Minimum spread to break even: ~2bps
Minimum spread for meaningful profit: 20-50bps

LP Activity (1 year):
  Lent: $100,000 at 8.5% APY
  Borrowed: $100,000 at 7.5% APY
  Spread: 100bps

Revenue:
  Interest received: $8,500

Costs:
  Interest paid: $7,500
  Protocol fee (lend): $8.50
  Protocol fee (borrow): $7.50
  Total costs: $7,516

Profit: $8,500 - $7,516 = $984

ROI: 0.98% on $100,000

To LP with $100,000 each side:

Lend side: $100,000 USDC
Borrow side: ~$125,000 collateral (at 80% LTV)

Total capital: ~$225,000 for $100k each side
Capital efficiency: ~45%

Given:
  Protocol fee: 0.1% of interest
  Target ROI: 5% annually
  Capital: $200,000

Required gross spread:
  5% + (0.1% × avg rate) / utilization

At 80% utilization, 8% avg rate:
  5% + (0.08 × 0.1%) / 0.8
  = 5% + 0.01%
  ≈ 5.01%

But spread is applied to half capital:
  Need 10% gross spread on $100k = $10,000

Actual spread needed: ~100bps with 80% utilization