# Where Lender Yield Comes From

> Lender yield comes from two sources. Neither is a token reward, and neither is interest charged to borrowers.

Canonical: https://spout.finance/docs/lender-yield/

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Lender yield comes from two sources. Neither is a token reward, and neither is interest charged to borrowers.

## 1. Covered call premium

Spout sells covered calls on the shares behind every collateral pool, as standard listed options on US options exchanges through its brokerage account. The buyers pay premium up front. After the protocol fee, that premium belongs to the lending pool.

Premium depends on how much collateral is in the pools and on how much options buyers are paying. It tends to be higher when markets are volatile and lower when they are calm. More borrowers bring more collateral, and more collateral means more premium.

## 2. Treasury bill yield

Most USDC that is not lent out sits in a tokenized US Treasury fund and earns its yield; a smaller USDC buffer is kept for instant withdrawals. Spout takes no fee on the Treasury yield. See Idle Cash, Treasury Bills and the Cash Reserve.

## Putting it together

`pool yield = premium after fee + Treasury bill yield on idle cash`

The pool yield is then split between the tranches: Senior's 7% priority first, then 25% / 75% of the excess. See Tranche Math.

## What does not affect your yield

**Whether borrowers make money**: Loans are backed by collateral worth at least twice the loan when they open, so a stock falling does not directly reduce your deposit, unless a liquidation leaves bad debt. Lower collateral values do mean less premium.

**Token prices**: There is no Spout token in the yield.