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Automatic Income Allocation

This document explains the technical mechanism used by the Rheofi Protocol to distribute protocol-generated income.

Rheofi generates income primarily from:

  • The interest rate spread (borrow rate minus supply rate)
  • A portion of liquidation incentives

This page covers:

  • Income sources
  • Distribution logic for Isolated Pools
  • Near real-time (“streaming”) allocation
  • How funds are routed to protocol destinations

Income Distribution Overview​

Rheofi generates income from two primary sources:

1. Interest Rate Spread​

The difference between:

  • Borrow rate paid by borrowers
  • Supply rate earned by suppliers

This spread accumulates as protocol reserves inside each market.

2. Liquidation Incentives​

When a position is liquidated:

  • A liquidation bonus is applied
  • A portion of that bonus is allocated to the protocol

This portion is treated as protocol income.

Streaming Income Distribution Model​

Rheofi aims to distribute accumulated reserves in a near-real-time manner using user-triggered transactions.

Instead of relying on off-chain scripts or manual governance actions:

  • Distribution logic is embedded directly into protocol contracts
  • User transactions naturally trigger income routing
  • No external bots are required

The ProtocolShareReserve contract serves as the central accounting and distribution hub for protocol income.

Isolated Pools

Isolated Pool – Spread Income​

For Isolated Pools:

  • Spread income accumulation.
  • Distribution occurs periodically after threshold conditions are met.

The mechanism is socialized and optimized for gas efficiency.

Isolated Pool – Liquidation Income​

In Isolated Pools:

  • Liquidations are handled directly by the rToken contracts.
  • The protocol’s share of seized collateral is transferred immediately to the ProtocolShareReserve.
  • No redemption retry logic is required.

This simplifies liquidation accounting within isolated environments.

ProtocolShareReserve Contract

All collected protocol income is managed by the ProtocolShareReserve contract.

This contract:

  • Tracks income per pool
  • Categorizes income by origin (spread or liquidation)
  • Manages distribution to final destinations

On XRPL Sidechain, native asset wrapping (if required) must occur before funds are transferred into the reserve contract.

updateAssetsState Function

The updateAssetsState function is responsible for registering newly received income.

Parameters​

  • address comptroller
    The Comptroller associated with the pool generating income.

  • address asset
    The asset being transferred into the reserve.

  • IncomeOrigin origin
    Specifies whether the income originated from:

    • spread
    • liquidation

Internal Logic​

When executed, the function:

  1. Calculates the net transferred amount (current balance minus previous balance).
  2. Assigns the amount to the appropriate:
    • Pool
    • Asset
    • Income category
  3. Updates the global accounting state for future distribution.

This design ensures accurate and auditable income tracking.

releaseFunds Function

The releaseFunds function distributes accumulated protocol income to designated destinations.

Key Characteristics​

  • Permissionless — can be called by anyone.
  • Executes a two-step distribution process.

Step 1: Transfer Funds​

Tokens are transferred from ProtocolShareReserve to configured destination addresses, such as:

  • Rheofi Treasury
  • Risk Fund
  • Governance Allocation

Step 2: Update Receiver State​

After transfer:

  • The receiving contract’s updateAssetsState function is invoked.
  • Accounting records are updated accordingly.

Design Goals

The Rheofi automatic income allocation mechanism is designed to:

  • Minimize manual governance intervention
  • Reduce operational overhead
  • Enable near-real-time income routing
  • Maintain full on-chain transparency
  • Support Isolated Pools
  • Operate efficiently within the XRPL Sidechain environment

Summary

Rheofi’s automatic income allocation framework ensures that:

  • Spread income and liquidation incentives are captured
  • Funds are routed through a unified reserve contract
  • Distribution is transparent and auditable
  • The process remains decentralized and user-triggered

This architecture strengthens protocol sustainability while preserving efficiency and security.