⚔️ Aave vs. Compound

Big differences and takeaways from these platforms.

June 02, 2022

Contents (4 min read):

  • ⚔️ Aave vs. Compound

    • What is Aave? 

    • What is Compound? 

    • TVL Difference (Total Value Locked)

    • Other Big Differences

    • Token Performance

    • Conclusion

  • 👀 Under the Radar

  • 🏖️ IRAs, tax-sheltered accounts

  • 🛠️ JOBS Section

  • 📰 ICYMI

  • 🙏🏻 Grateful for…

  • 💸 Coupons

⚔️ Aave vs. Compound

There are many differences between Aave and Compound, but the most important are the services they offer, their TVL (Total Value Locked), ease of use, and how they were funded.

Both protocols are decentralized, non-custodial, built on the Ethereum Blockchain and are considered DeFi Blue Chips.  Both were launched in 2017. 

What is Aave? 

Aave is a London-based lending protocol where users can participate as depositors or borrowers. As per the Aave site, depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.  

Formerly known as ETHLend, Aave received most of its funding, around $16.2 million, from its ICO (Initial Coin Offering) in 2017.

In order to interact with Aave, you simply deposit your preferred asset and amount. After depositing, you will earn passive income based on the market borrowing demand. Additionally, depositing assets allows you to borrow by using your deposited assets as collateral. Any interest you earn by depositing funds helps offset the interest rate you accumulate by borrowing. 

What is Compound? 

Compound was also created in 2017 and was well received in the crypto space from the beginning.  The COMP token doubled in value in just 5 days after its launch.  

Headquartered in San Francisco, its geographic location gave the company easy and fast access to VC investors, where most of its initial funding came from.  Additionally, it enjoyed direct access to Coinbase, the largest US platform to buy, sell and store cryptocurrencies, which was also created in the Bay Area.  Coinbase listed the Compound token early, placing it in front of thousands of new potential investors allowing it to raise more capital during their initial stage.  

TVL Difference (Total Value Locked)

There are big differences when it comes to TVL (Total Value Locked) between these platforms.  At the time of writing, Aave was by far the largest with $15B in total TVL, according to aave.com.  Compound registered $5.3B in TVL as per their home page.  We saw that DeFiLlama has different figures. 

Other Big Differences

Between the two Lending protocols in this article, there are some very important differences to keep in mind.

  • Aave and Compound run on the Ethereum chain, but Aave offers support for other chains such as Avalanche, Fantom, and Harmony.  Compound is only compatible with Ethereum.

  • The above also means that Aave has support for more stable coins and more tokens.

  • Avalanche users can stake USDT on Aave paying lower gas fees and they seem to be expanding chain options in order to continue offering lower fees to their customers.

  • Compound does not offer Flash loans (borrow transactions that must be repaid within the same block), Aave does.

  • The borrow-to-collateral ratio for borrowing is 80% on Aave, which means you can borrow 80% of the value of your collateralized assets. (i.e. deposit $100, you can borrow %80). At the time of writing it was 66% on compound.

Token Performance

As we enter the sixth month of this bear market, we see that the performance of both tokens has suffered tremendously.  Aave has dropped 67.5% during the last 6-month period, and Compound has lost a staggering 84.1% of its value.  To put into perspective, the total crypto market during the same 6-month period has lost 42% of its value.  

Conclusion

The two lending protocols show big differences in terms of their size, the chains that each is compatible with, and token performance.  Aave has been working to attract new users and users from other chains by expanding the number of available tokens and stable coins in its platform.  Aave also seems to be more robust and stable while Compound is easier to use as their menu is simpler.

Protocols change daily and there are macro and micro forces that can shift the rewards and risks associated with any platform.  It is recommendable to always do your due diligence in order to avoid or minimize losses.

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👀 Under the Radar

  • Waves (WAVES) - Waves is an open blockchain protocol and development toolset for Web 3.0 applications and decentralized solutions, aiming to raise security, reliability and speed of IT systems. It enables anyone to build their apps, fostering mass adoption of blockchain.

  • Synthetix Network Token (SNX) - Decentralized synthetic asset issuance protocol founded by Kain Warwick and the Synthetix Foundation. Initially, it was known as Havven when it first launched in September 2017. During its seed round and token sale, it managed to raise $30 million by selling 60 million HAV tokens to investors. In late 2018, the platform expanded its vision and rebranded to Synthetix. Today, the platform is the largest decentralized exchange for derivatives in the decentralized finance (DeFi) space, boasting an impressive ~$700M in total value locked (TVL) as of November 2020.

  • Helium (HNT) - Helium is a decentralized machine network powered by a physical blockchain. The network is created by gateways who also double as miners on our network. These gateway operators can earn tokens based on coverage they provide as well as transaction fees gained from machines connecting to their gateway.

🛠️ JOBS Section - Together with TheDefiant.io we bring you.

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