Users can borrow assets from Aave for a brief time without providing any type of collateral. Flash loans are not available at Compound.
What is Aave and How Does It Work?
Comparing the top lending platforms can be challenging, but Compound and Ave offer a variety of features that can help crypto enthusiasts. One of the most well-known decentralized financial protocols on Ethereum is Aave. It enables its users to deposit and borrow a wide range of assets, with interest rates automatically set by the market rather than by centralized lenders, as is the case in traditional finance.
One of the most unique features of Aave is its “flash loans, which allow users to borrow assets without having to put up any collateral. With no assets to use as collateral and no experience in decentralized finance, the platform is the best place to start if you need capital.
Additionally, Aave has a practical reserve system that lets users who deposit their assets on the platform earn interest. Aave is able to offer such aggressive interest rates on deposited assets thanks to this reserve system.
In addition to the flash loans and one-of-a-kind reserve system, Aave also has other features that make it attractive to users, including:
- No KYC requirements: Users of Aave are not required to go through a KYC procedure in order to access the platform. This makes it attractive to users who value privacy, a pillar of blockchain technology.
- A wide variety of assets: Stablecoins, conventional cryptocurrencies, and fiat money are just a few of the assets that the platform supports.
- Competitive interest rates: Aave offers some of the most competitive interest rates in the industry.
(Read More: Is Staking Crypto Safe & Is It Worth Staking Crypto?)
What is Compound and How Does It Work?
Just like Aave, Compound is a decentralized finance protocol that allows users to deposit and borrow various assets. Compound, in contrast to Ave, does not provide flash loans. The COMP token, which grants users voting privileges on the platform, is just one of the appealing features that Compound offers. This allows its holders to have a say in how the platform is run and what features are added.
Given that neither Aave nor Compound has a KYC system in place or offers a limited selection of assets or favorable interest rates, there are many similarities between the two platforms. That being said, the main difference between the two lies in the fact that Aave offers flash loans and Compound does not. Regular loans on Ave have less stringent collateral requirements than those on Compound. Lending and borrowing services are available on both platforms.
Also Read: Crypto Compare Guide 2023 – Exchanges, Wallets, Tokens & More
Aave Vs Compound: Main Difference
Interest Rates
Since the market sets the interest rates for Ave and Compound, the rates may change in response to the demand for the assets being deposited or borrowed. For various assets, Aave provides a range of interest rates. For instance, the interest rate on USDC is currently 2.35%, while the interest rate on WETH (wrapped ETH) is 3.75%.
Contrarily, compound offers marginally higher interest rates across the board. Although the rate will probably change when you read this article, the compound distribution APY is currently 2.5%. The asset being deposited or borrowed determines which platform offers the best interest rates. But in general, Compound seems to offer a little bit more competitive interest than Ave.
Market Caps
A cryptocurrency’s market capitalization is calculated by dividing the coin’s price by its current circulating supply. In this context, the circulating supply is the number of coins that are currently in circulation. Just under $1 trillion is the market cap of Aave, and there are 13 to 14 million AAVE in circulation. This results in a market cap per coin for the Aave platform of about $71.
Compound, on the other hand, has a market cap of about $300 million and a circulating supply of about 7 million COMP. Compound now has a market cap of $42 for each coin.
Token Performance and Collateral Requirements
The price of a cryptocurrency over time is its proximate measure of performance. The assets that must be deposited in order to borrow a specific asset are known as the collateral requirements.
Since its debut in January 2018, the token performance of Aave has been fairly solid. AAVE’s price has increased by more than 25,000% from $0.28 to its present price of $68.40. Its peak price for a coin is $630. Furthermore, Aave has relatively low collateral requirements. For instance, the collateral requirement for a USDC loan is 1.75x, whereas the requirement for a WETH loan is 2x.
The cost of Compound has also increased steadily since its release in September 2018. COMP now costs $50, up from $0.36 when this article was being written. This amounts to an increase of more than 13,000%. In November 2021, a price of just over $850 per coin was established as the COMP coin’s ATH. Compound also has very low collateral requirements for its DeFi features. In comparison to WETH, which has a 1.75x collateral requirement, USDC has a 1.5x collateral requirement.
Aave and Compound offer a variety of services that can help your crypto investment strategy, whether you’re staking, trading, or doing any of the three.
Aave Vs. Compound: Which is Better?
Generally speaking, Aave is a better deal than Compound in terms of features, functionality, and versatility of offerings. Here are a few characteristics that distinguish Aave.
A Large Number of Assets
In its borrowing pool, Aave provides a range of cryptocurrency assets. Aave offers a total of 23 different crypto assets, whereas Compound only provides 9. The platform is therefore appealing to a large number of investors holding different cryptocurrencies.
Aave Offers Higher Borrowing Amounts Compared to Collateral
On Aave, borrowers are permitted to borrow more than their deposited collateral.In contrast to the 66.6% permitted on Compound, Aave allows borrowers to borrow up to 75% of their total collateral.
Aave Offers Flash Loans
With its short-term collateral-less loan service, known as Flash Loan, Aave has drawn in a lot of customers. Decentralized finance is seeing a rise in the practice of “Flash Loans,” which let borrowers borrow crypto assets for a brief period of time without putting up any collateral.
The Takeaway: Compound Vs Aave
DeFi lending and borrowing, though still in its early stages, has accelerated rapidly, and Aave and Compound are setting the pace by assisting cryptocurrency owners in making money from their stored assets. Aave outperforms Compound when the two platforms are pitted against one another in terms of innovation and execution. With a wide selection of cryptocurrencies, Aave is also more diversified.
In an effort to assure investors of the security of their money, Compound has also recently undergone a number of security audits by reputable organizations like Trail of Bits and Open Zeppelin.
FAQs
What is the Difference Between Aave V3 and Compound V3?
The real difference arises between the new approaches to liquidity. Aave V3 introducesthe idea of the “Portal”, which will allow liquidity to flow between markets and across chains. Meanwhile, Compound V3 moves to a model in which each deployment is for a single asset.
Is Lending on Aave Worth It?
Aave is an excellent protocol for advanced users and also offers some truly unprecedented features and benefits for high and low-volume users. For those who are knowledgeable about the ins and outs of crypto-based lending and borrowing, it is a smart choice due to its simple and immediate lending protocols.
Which Coin is Similar to Aave?
Venus allows the world’s first decentralized stablecoin (VAI), built on Binance Smart Chain. It is backed by a variety of stablecoins without central control and can be used to fund a range of crypto assets. According to the demand in the market, funds held within the protocol may earn APYs.
