Aave’s journey beyond the compound in DeFi lending

Although it only came onto the market in 2020, Aave has already overtaken its renowned competitor Compound and has increased its market capitalization eight-fold within six months.

In an industry as volatile as cryptocurrencies, many are wondering whether the platform has the strength to be a central DeFi credit institution?

Almost 2 years later, Aave is still strong, especially against a once closer opponent.

This article will take a closer look at the strengths and weaknesses of the two platforms and explain why Aave was able to outperform Compound.

Compare TVL Aave and Compound

TVL (as of January 2021) | Source: Footprint Analytics

On October 20, Total Value Locked (TVL) in the DeFi market topped $ 200 billion (at $ 241.575 billion), with Aave’s TVL holding the largest stake at $ 18.89 billion. This is followed by credit protocols like Curve ($ 18.01 billion), MakerDAO ($ 16.4 billion), and Compound ($ 12 billion).

Rank 10 platforms Yes sir Top TVL | Source: Footprint Analytics

On lending, Aaves TVL was ahead of Compound for the past six months. This is likely due to the fact that its model is similar to traditional finance and the Financial Conduct Authority’s ability to work with crypto assets.

Compare market capitalization

On October 20, Aave Compound surpassed $ 1.97 billion in the DeFi loan and credit industry with a market cap of more than $ 4 billion compared to Compounds.

There are two other indicators that show Aave’s strong position going forward.

Market capitalization of Aave vs. Compound (as of Jan 2021 | Source: Footprint Analytics

First, circulating supply is 82% higher than Compound’s 61%, suggesting lower inflationary pressures.

Second, Aave has not had any major security issues, is a better security mechanism, and is therefore preferred by senders.

Aave deposit volume prevails

Aave’s deposit volume is around $ 21 billion, still higher than Compound’s estimate of $ 18 billion. Compound had previously engaged in assisted lending and mining activities (covertly increasing deposit income and lowering lending rates to compete with Aave). Now Aave has got into lending and mining, along with Polygon’s loan and deposit subsidies. Compound’s interest rate advantage is also largely overshadowed by the bargaining power in the Aave ecosystem.

excess insoles (As of September 2021) | Source: Footprint Analytics

Team Aave continues to focus on innovation, but is aware of the high risks and immediately adjusts the product direction if problems arise in order to make the platform more secure.

Can Aave Users Lend More Assets Than Compound?

Last month’s data showed that Aave’s credit balance was consistently above $ 8.2 billion per day, still higher than Compound’s $ 5-7 billion credit balance, with almost no overall volatility.

Aave loan balance as of September 2021 | Source: Footprint Analytics

Aave supports more tokens so users can lend more assets and have more liquidity. Some of Aave’s interest rate agreements are also considered more innovative and have advantages over Compound, such as unsecured flash loans, swaps and lines of credit. The disadvantage, however, is the relatively high lending rate and the loan fee.

Current liquidity distribution of Aave | Source: Footprint Analytics

Compound liquidity distribution of the last assets | Source: Footprint Analytics

Aave and Compound support a wide variety of cryptocurrencies, including stablecoins such as DAI, USDC, USDT and non-stablecoins such as WBTC, UNI. With Aave, users primarily oblige ETH to lend to USDC, DAI, and USDT. With Compound, ETH users commit to loan DAI and USDC. Although the supply of DAI and USDC is the same, there is a greater demand for DAI than for USDC.

It should also be noted that Aave is one of the few licensed and freely convertible projects in the UK.

difference Above liquidation

There are two traditional liquidation methods available: MakerDao’s auction method and Aave and Compound’s liquidation method, which work on the first-come-first-served principle.

Compound sets a liquidation limit of 75% and a loan interest rate that triggers liquidation when 100% is reached. However, only 50% of the company’s assets will be liquidated.

Aave, on the other hand, has a safety margin of 5%, which minimizes the risks, especially for newbies.

Conclude

In summary, Aave continues to dominate Compound, mainly due to the following points:

– Aave is more active in business innovation and expansion, has issued more tokens on the platform and is relatively gaining prominence in terms of unsecured quick loans, automated market makers, mandate lines of credit and connection with the traditional financial industry.

– On October 19, 2021, TVL Aave hit an all-time high. This success is due to the team behind the company, which is focused on security, risk management and product strategy.

– Aave is progressing much faster on compliance to reduce risk.

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