Two of the most popular bitcoin lending systems with reasonable rates are Aave and Compound. As a result, the terms Aave and Compound are commonly used interchangeably.
The story of Aave’s ascent from its humble beginnings as ETH lend to its expanding prominence in the DeFi (Decentralized Finance) market is fascinating. Maker, Uniswap, and Curve Finance are just a few of the DeFi protocols that the upstart blockchain platform often challenges and sometimes even defeats.
The compound was founded in 2017 and witnessed a surge in popularity among investors in June 2020, when the price of its COMP governance token quadrupled in only five days of trading. The early backing of big cryptocurrency exchanges like Coinbase, which made it accessible to the typical US investor, also influenced the price. Coinbase was also an early investor in Compound, and for learning about the business through Coinbase Learn, you can get roughly $40 in COMP.
Aave and Compound battle against one another for increased control of the DeFi space, utilising innovative concepts and services to obtain a competitive advantage.
The following article compares and contrasts Aave and Compound and their investing platforms, tokens, and other DeFi loan solutions.
TL;DR: Aave vs Compound: Aave and Compound allow investors to borrow money using their idle crypto tokens as collateral or lend them cryptocurrency at a reasonable interest rate. Aave is a newer blockchain platform that offers a few distinct capabilities that Compound does not, and it has gained a lot of traction in the last year.
What is the Process of DeFi Lending and Borrowing?
Long-term lending and borrowing are often done by traditional banks using instruments such as mortgages, vehicle loans, and student loans. CDs (certificates of deposits), Repos (repurchase agreements), Treasury Bills, and a few other securities are used by short-term lenders in money markets.
In the DeFi universe, lending and borrowing are distinct.
The functions of borrowing, lending, and management are all decentralised.
The procedure is unrestricted.
Traditional banking and short-term loan businesses, on the other hand, have a centralised and permission-based structure.
Lending and borrowing in DeFi are done using protocols like Compound and Aave. These decentralised protocols do not necessitate any party’s identification or financial history.
Some of the loans are done through Decentralized Exchanges (or DEXs), which allow peer-to-peer transactions to take place without the need for a central bank or middleman to keep track of the cryptocurrency.
Put it another way. No third-party institution keeps and distributes capital so that one party can lend to or borrow from another. Smart contracts provide these duties by automatically carrying out the provisions of an agreement whenever specific criteria are met.
These third parties typically charge a fee or a portion for their services. Because DeFi is peer-to-peer, a more significant amount of the overall value being transacted can theoretically pass through instead of ending up in the coffers of another party.
In the case of Aave and Compound, the magic happens through Decentralized Apps (dApps.)
DeFi Apps are innovative in the traditional financial sector since they are decentralised in governance and data custody. Many people have developed an optimistic case for the DeFi sector because of these attributes mixed with a speculative spike in interest for DeFi tokens.
Aave and Compound are both non-custodial, meaning the lender’s cryptocurrency stays in the owner’s wallet, and the courses on blockchain technology does not assume electronic custody of it.
One of the original motives for creating cryptocurrencies over a decade ago was to have complete custody of your digital assets, and DeFi supporters argue that this feature is essential for decentralisation.
For example, Satoshi Nakamoto, the founder of Bitcoin, envisioned the cryptocurrency as a full-fledged financial system that is not controlled by or favours any single party.
What exactly is Aave?
Aave (pronounced “ah-veh”) started as ETHlend; a peer-to-peer lending network renamed Aave in 2020.
ETHlend was a peer-to-peer lending platform, similar to a job board, wherein lenders and borrowers could negotiate conditions without the need of a middleman.
In a flurry of revisions, founder Stani Kulechov renamed the Aave a more appealing investment alternative for institutional and individual investors. In other words, the branding was a makeover to position the company as a serious competitor in the DeFi industry.
Aave offers variable and fixed interest rates. On the other hand, Compound only provides variable interest rates on borrowed cash.
Aave’s steady interest rate is based on an average of market interest rates for a specific asset, visible to both borrowers and lenders on Aave’s platform.
Aave additionally lets customers convert from a fixed to a variable rate at any time by just paying the ETH gas charge transaction cost.
The variable interest rate on Aave is calculated by an algorithm that monitors how much money is borrowed from user pools. The more significant the amount borrowed, the higher the demand and, as a result, the variable interest rate.
Which is Better: Aave or Compound?
We found Aave to be an excellent deal when blockchain education came to the variety of options and providing more outstanding value for your money.
Aave has a more excellent selection of assets.
For starters, Aave’s loan pool allows a much more comprehensive range of crypto assets than Compound’s.
Investors may choose from 23 different crypto assets on Aave, compared to 9 on Compound.
This draws a broader range and quantity of investors, perhaps making the platform more enticing to those who possess a variety of tokens.
Final Thoughts: Compound vs Aave
DeFi lending and borrowing are at the cutting edge courses on blockchain technology. Thus blockchain developer may be highly unpredictable and hazardous.
Both Compound and Aave provide well-developed bitcoin lending and interest-earning options.
When comparing Aave to Compound, one may argue that Aave has outperformed Compound in creativity and execution. Aave offers a broader range of bitcoin assets and innovative solutions like Flash Loans.
Unlike most DeFi exchanges today, which can only function on the Ethereum Blockchain education, a Compound Chain will be able to connect to any blockchain developer and other networks quickly.