Net Interest Income (NII)

Net Interest Income (NII) in crypto refers to the revenue generated from interest-bearing activities after deducting the interest paid out to depositors or lenders. It's a key metric for crypto lending platforms and decentralized finance (DeFi) protocols. NII is calculated by subtracting the interest expenses from the interest income.

Example:

Let's say a crypto lending platform has $10 million in loans outstanding, and it charges an average interest rate of 8% annually. It also pays out interest of 4% annually to depositors who provide liquidity to the platform. The calculation for NII would be as follows:

Interest Income = $10,000,000 * 8% = $800,000

Interest Expense = $10,000,000 * 4% = $400,000

Net Interest Income (NII) = Interest Income - Interest Expense

= $800,000 - $400,000

= $400,000

So, the platform's NII in this example would be $400,000.

Case:

In a decentralized finance (DeFi) protocol, users supply cryptocurrency assets into liquidity pools and earn interest on their deposits. The protocol then lends out these assets to borrowers who pay interest on their loans. The NII for the DeFi protocol would be the interest earned from borrowers minus the interest paid to depositors.

If a DeFi protocol has $50 million worth of assets supplied by users, with an average interest rate earned of 10% annually, and it lends out these assets at an average interest rate of 15% annually, the calculation for NII would be as follows:

Interest Income = $50,000,000 * 15% = $7,500,000

Interest Expense = $50,000,000 * 10% = $5,000,000

Net Interest Income (NII) = Interest Income - Interest Expense

= $7,500,000 - $5,000,000

= $2,500,000

So, the DeFi protocol's NII in this case would be $2,500,000.