Yield & Overyield
Overlayer generates yield from the stablecoins supplied to Aave. Overyield describes how the portion allocated to stakers can produce a higher return when it is shared across less capital than the backing that generated it.
The distinction is between how much capital generates yield and how much capital participates in receiving it.
From lending yield to staking yield
The stablecoins backing Overlaid Assets are supplied to Aave, where the supply position earns variable lending yield. Overlayer acts as a supplier: it does not borrow against that position or use leverage to increase returns.
The yield available for distribution passes through the protocol’s allocation mechanism. After the applicable performance fee, the portion assigned to stakers increases the amount represented by their Staked Overlaid Assets.
Productive backing → lending yield → performance fee → yield allocated to stakers.
This distribution is separate from the principal supporting outstanding Overlaid Assets. The fee applies to generated yield, not to the deposited capital, and principal required for backing is not treated as distributable revenue.
For the applicable fee and its destination, see Fees.
Where Overyield comes from
The backing of an Overlaid Asset remains productive whether the base token is staked or used elsewhere. Only the staked portion participates in the staking allocation.
For example, the USDC backing of C+ can generate yield while some C+ circulates in wallets or liquidity pools. That unstaked C+ does not receive staking yield, but its backing still contributes to the yield available to sC+ holders.
The yield comes from the broader backing; the staking allocation is shared only among the participating capital. That concentration is Overyield. It does not create an additional source of returns or require a more complex investment strategy.
The calculation applies separately to each asset family. C+ staking participation is measured against the C+ family, not against a combined pool of all supported stablecoins.
The staking ratio
The staking ratio is the proportion of an Overlaid Asset’s total supply participating in staking:
Staking ratio = base Overlaid Assets represented by staking ÷ total base Overlaid Asset supply
For example, if 250,000 C+ out of a total supply of 1,000,000 C+ participates in staking, the staking ratio is 25%.
Staked capital is measured in base-asset units, not the number of staked tokens. If 100 sC+ represents 110 C+, those shares contribute 110 C+ to the staking amount.
For conversion ratios and share accounting, see Staked Overlaid Assets.
Calculating the concentration effect
For a given period, the net return allocated to staked capital can be expressed as:
Net staking return = yield allocated to stakers ÷ staked capital
Under simplified conditions, this becomes:
Net staking return ≈ underlying lending return × (1 − performance fee) ÷ staking ratio
The approximation assumes fully productive backing, constant capital amounts and an unchanged fee over the period. It excludes compounding and transaction costs. The underlying return and staking return must refer to the same period. This illustrates the distribution relationship, not a guaranteed rate.
Worked example
Assume the C+ family has 1,000,000 USDC of productive backing, a 4% base annual lending yield and a 25% performance fee.
The fee leaves 75% of generated yield for stakers. For a simplified one-year calculation:
| Step | Calculation | Amount |
|---|---|---|
| Gross lending yield | 1,000,000 USDC × 4% | 40,000 USDC |
| Performance fee | 40,000 USDC × 25% | 10,000 USDC |
| Yield remaining for stakers | 40,000 USDC − 10,000 USDC | 30,000 USDC |
The remaining yield corresponds to 30,000 C+ allocated to the staking position. If that position represents 250,000 C+, the staking ratio is 25% and the net annual return in this example is:
30,000 ÷ 250,000 = 12%
The same result can be expressed directly through the concentration formula:
4% × (1 − 25%) ÷ 25% = 12%
The backing generates 4%, while the participating capital receives 12% after the performance fee. This does not mean the protocol created three times as much yield. It distributed 75% of the yield generated by the full backing across 25% of the capital.
This is a static, non-compounding illustration: capital amounts, the lending rate and the fee are held constant. The 4% base yield is an example, not a live rate or forecast, and the resulting 12% is not a compounded APY. For the fee applicable to a particular period, see Fees.
What changes when more supply is staked?
Keep the same productive backing, 4% base annual yield and 25% performance fee, but change the staking participation:
| Staked capital | Staking ratio | Annual yield allocated to stakers | Net annual return in the example |
|---|---|---|---|
| 250,000 C+ | 25% | 30,000 C+ | 12% |
| 500,000 C+ | 50% | 30,000 C+ | 6% |
| 750,000 C+ | 75% | 30,000 C+ | 4% |
| 1,000,000 C+ | 100% | 30,000 C+ | 3% |
More staking participation spreads the same allocation across more capital.
At 75% participation, the net staking return equals the 4% base lending return in this example. At 100% participation, there is no unstaked supply contributing yield to a smaller staking base: the return is 3%, the base return after the performance fee.
Overyield does not mean that the net staking rate always exceeds the underlying lending rate. Both the staking ratio and the fee affect the outcome.
Why the rate changes
Staking yield changes with the underlying lending return, the amount of productive backing, staking participation and applicable fees.
More TVL alone does not necessarily mean a higher rate. If productive backing and staked capital grow in the same proportion, the concentration effect remains unchanged, assuming the lending return and fee stay the same.
If more supply remains unstaked while its backing stays productive, the concentration effect increases. If more supply moves into staking, it decreases. Changes in the lending return can reinforce or offset either effect.
How you receive the yield
Allocated yield increases the amount of base Overlaid Assets represented by each staked share. It is not a separate payment that requires a staking-yield claim.
Yield generated by the backing, yield allocated to staking and the annualized rate displayed are different measures. The conversion ratio reflects the amount represented by your shares; it is not itself an APY.
For the share mechanism and examples, see Staked Overlaid Assets.
To enter or exit a staking position, see Stake & Unstake.