In an trade with loads of quick ascents and precipitous falls, many questioned whether or not the platform had the endurance to stay a central establishment in DeFi lending.
Practically 2 years later, Aave continues to be going sturdy, particularly in relation to its one-time shut rival.
This text will take a better take a look at the 2 platform’s strengths and weaknesses and clarify why Aave was in a position to overtake Compound.
Aave and Compound TVL In contrast
As of Oct. 20, the DeFi market has surpassed $200 billion in complete locked-in worth (TVL) at $241.575 billion, with Aave’s TVL gaining the biggest share at $18.89 billion. That is adopted by lending protocols Curve ($18.01 billion), MakerDAO ($16.4 billion) and Compound ($12 billion).
Within the lending house, Aave’s TVL has been method forward of Compound within the final six months. This may be attributed to its mannequin, which has similarities to conventional finance, and its means to function in Monetary Conduct Authority-encrypted belongings.
Comparability of Market Cap
As of Oct. 20, Aave continues to dwarf Compound within the DeFi lending and borrowing trade with a market cap of over US$4 billion versus the latter’s $1.97 billion.
There are two different metrics that point out Aave’s sturdy place sooner or later.
First, its circulating provide of 82% is larger than Compound’s 61%, indicating much less inflationary strain.
Second, Aave has not had any main safety incidents, indicating higher safety mechanisms possible favored by depositors.
Aave’s deposit volumes dominate
Aave’s deposit quantity of roughly $21 billion has remained larger than Compound’s estimated $18 billion. Compound beforehand went dwell with sponsored lending and mining (disguisedly raised deposit returns and lowered lending charges to compete with Aave). At this time, Aave has turned to lending and mining, coupled with Polygon’s deposit and lending subsidies. Compound’s charge benefit has largely disappeared as a side-effect of Aave’s ecosystem bargaining energy.
The Aave group continues to concentrate on innovation whereas being extremely risk-aware, and adjusts the path of the product in a well timed method when points come up, making the platform safer.
Can Aave customers lend out extra belongings than Compound?
Knowledge for the earlier month exhibits that Aave’s borrowing steadiness has leveled off above $8.2 billion per day, which continues to be larger than Compound’s borrowing steadiness of $5-7 billion, with little total volatility.
Aave helps a greater variety of tokens, permitting customers to lend out extra belongings and have extra liquidity out there. A few of Aave’s charge agreements are additionally thought of extra progressive and have some benefits over Compound, corresponding to unsecured flash loans, charge swaps and line of credit score mandates. However on the draw back, it comes with comparatively excessive lending charges and mortgage charges.
Aave and Compound assist a wide range of cryptocurrencies, together with stablecoins corresponding to DAI, USDC and USDT, and non-stablecoins corresponding to WBTC and UNI. With Aave, customers primarily pledge ETH to lend USDC, DAI and USDT. With Compound, customers pledge ETH to lend DAI and USDC. Whereas the provision of DAI and USDC is about the identical, the previous has extra demand than the latter.
Additionally it is value noting that Aave is without doubt one of the few licensed initiatives and is freely convertible in the UK.
Variations in liquidation
There are at present two conventional liquidation strategies: the public sale format of MakerDao and the liquidation technique of Aave and Compound, which function on a first-come, first-served foundation.
Compound units a liquidation line of 75% in addition to a borrowing charge that triggers liquidation when 100% is reached. Nevertheless, solely 50% of its belongings will probably be liquidated.
Aave, however, has a 5% security cushion, mitigates danger, particularly for brand spanking new customers.
Conclusion
In abstract, Aave continues its dominance over Compound, primarily because of the next factors:
- Aave has been extra aggressive in innovation and enterprise growth, having extra forms of tokens launched on its platform and gaining relative traction on unsecured flash lending, automated market makers, line of credit score mandates, and with the normal finance trade.
- On 19 October 2021, Aave TVL hit an all-time excessive that was made potential by the group behind the corporate whose focus is on security, danger administration and product technique.
- Aave has progressed a lot quicker by way of compliance to mitigate danger.
The above content material is barely a private view, for reference and knowledge solely, and doesn’t represent funding recommendation. If there are apparent errors in understanding or information, suggestions is welcome.
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