Aave vs. Compound
Aave and Compound are two of the leading DeFi lending protocols. They differ in terms of their features, risk management systems, and maturity. This makes them interesting case studies for the different approaches that can be taken to DeFi lending.
Key Differences
Feature | Aave | Compound |
|---|---|---|
Asset support | All ERC-20 assets | ETH, DAI, USDC, USDT, MKR, BAT, WBTC, ZRX, UNI, YFI, SUSHI, LINK and AAVE |
Risk management | Single-borrowable asset model | Pooled-risk model* |
Liquidation system | Protocol-based | Liquidator-based** |
Capital efficiency | High | Medium |
Other features | Flash loans, credit delegation, Portal, isolation mode, dynamic interest rates | Dynamic interest rates***, COMP token |
* Compound V3 Risk Management is a Single-borrowable asset model.
** Compound V3 Liquidation System is a Protocol-baed.
*** Compound V3 doesn't offer Dynamic interest rates.
Summery of the key differences
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Asset types: Aave supports all ERC-20 assets, while Compound only supports a limited number of assets.
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Risk management: Aave uses a single-borrowable asset model, while Compound uses a pooled-risk model. This means that if one asset in the pool crashes in Compound, it could lead to liquidations of other assets in the pool. In Aave, if one asset crashes, it will only affect that asset.
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Liquidation system: Aave uses a protocol-based liquidation system, while Compound uses a liquidator-based liquidation system. This means that in Aave, liquidations are handled by the protocol itself, which means that borrowers are less likely to be liquidated and if they are, they will face lower liquidation penalties. In Compound, liquidators are incentivized to liquidate undercollateralized borrowers, which can lead to high liquidation penalties for borrowers.
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Capital efficiency: Capital efficiency is high in Aave, and medium in Compound. This means that borrowers can borrow more assets against their collateral in Aave than in Compound.
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Other features: Aave supports flash loans, credit delegation, Portal, isolation mode, and dynamic interest rates. Compound only supports dynamic interest rates and the COMP token.
Conclusion
Aave and Compound are both excellent DeFi lending protocols. However, they have different strengths and weaknesses. Aave is a more advanced protocol with a wider range of features, while Compound is a more mature protocol with a larger user base. Ultimately, the best DeFi protocol for you will depend on your individual needs and preferences.
