Interest Allocation: Case Study

To illustrate how self-lending reduces net borrowing costs, consider a standardized example involving User A, who borrows $5,000 at 50% APR to open an LVF position. Instead of relying entirely on external lenders, User A supplies $4,000 of the lending pool themselves using a flashloan-enabled self-lending loop—meaning 80% of the interest paid to lenders is redirected back to them.

Interest Distribution Breakdown (User A)

Component	Amount
Total Interest Paid	$2,500 (50% of $5,000)
Interest to Lenders (90%)	$2,250
– Returned to User A (80% share)	$1,800
– Paid to External Lender (User B)	$450
Protocol Fee (10%)	$250
Net Interest Cost (User A)	$700

📌 By supplying the majority of the lending pool, User A effectively reclaims 80% of the interest paid to lenders—lowering their real cost from $2,500 to just $700. This drastically improves capital efficiency without impacting lender returns or protocol revenue.

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