# Protocol Fees

Pike generates revenue through automated fee collection that helps sustain platform operations and compensate stakeholders involved in protocol management. Understanding how these fees work helps you make informed decisions about your lending and borrowing activities.

## Protocol Fee Structure

Pike collects fees from two main sources during normal protocol operations:

**Interest Fees**

* **Source**: A portion of interest paid by borrowers
* **Collection**: Automatically deducted when interest accrues based on the reserve factor
* **Formula**: `reserves = borrowRate × utilizationRate × reserveFactor`
* **Impact**: Slightly reduces the interest rate paid to lenders

**Liquidation Fees**

* **Source**: Collateral seized during liquidations
* **Formula**: `protocolFee = seizedTokens × protocolSeizeShare`
* **Collection**: Automatically retained when liquidations occur
* **Impact**: Reduces liquidation incentive paid to liquidators

### Fee Distribution

Collected fees are distributed among key protocol stakeholders:

* **Protocol Owner Share**: Supports protocol development and infrastructure maintenance
* **Governor Share**: Compensates ongoing governance activities including risk parameter management, market configuration, and protocol oversight. The Governor can withdraw their allocated portion through the governance process.
* **Reserve Buffer**: Remaining portion kept for protocol security and emergency situations

### Fee Implications

**As a Lender:**

* You receive slightly less interest due to the protocol fee
* Fees help ensure long-term protocol sustainability and security
* Your deposits remain fully protected by the protocol’s risk management

**As a Borrower:**

* Interest rates include a small protocol fee component
* Liquidation fees provide additional incentive for healthy position management
* Fees support ongoing protocol improvements and security measures

**Emergency Protections:**

* Emergency Guardian can access reserves to protect user funds during critical situations
* Protocol reserves create an additional layer of protection during market volatility
* Transparent on-chain tracking of all fee collection and distribution The fee structure is designed to be minimal and transparent while ensuring Pike remains sustainable and secure for all users.


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