Maker DAO vs AAVE vs Compound: Guide to DeFi Lending

What is DeFi Lending?

DeFi Lending is offered by P2P applications where users can borrow and lend crypto assets in a decentralized manner. Users who lend assets earn interest and those who borrow pay interest. DeFi Lending protocols work in a trustless manner by eliminating third parties required for loan verification. For this, they use a smart contract, a set of code that is executed automatically when pre-determined conditions are met.

In this article, we will compare three popular DeFi lending protocols: Aave, MakerDao, and Compound. We will discuss their key features, differences, working, and whether you should invest in them.

Additional Read: Top DeFi Projects in 2023

What is Aave? 

Aave is a decentralized liquidity market protocol built on the Ethereum blockchain. It allows users to lend their crypto assets to earn interest and borrow crypto loans by depositing other cryptos as collateral. The platform also offers other services, including trading, staking, flash loans(uncollateralized loans), and issuance of stablecoins.

Aave has its native token, AAVE, for governance and Stablecoin GHO pegged to the US dollar. Besides Ethereum, Aave has expanded to other blockchains, including Avalanche, Fantom, and Harmony. The platform uses liquidity pools to eliminate centralization and smart contracts to automate the lending process. 

Key Features of Aave

• Aave supports the lending and borrowing of various crypto assets, including Ethereum (ETH), Bitcoin (BTC), and stablecoins such as USDT, USDC, DAI, and other ERC-20 tokens.
• Apart from traditional lending, Aave offers “flash loans” to users for borrowing crypto assets without submitting any collateral. However, users have to return the borrowed amount in the same traction within a specific duration.
• Aave has integrated with several DeFi platforms, like Uniswap, Balancer, etc., to provide advanced features and various financial services to its users.
• Aave uses decentralized autonomous organization (DAO) governance, where AAVE token holders create, sustain and vote for proposals to manage and develop the protocol.
• Aave provides its borrowers with two interest rate options: floating rate loans and stable rate loans.

Latest News on Aave 

• Recently the Aave V2 on the polygon network faced a halt in its protocol, making users unable to borrow, repay or withdraw crypto assets worth around $110 million. The Aave DAO is working to solve the issue by submitting their votes on a new governance proposal.

found a governance issue in Aave V2 impacting the Polygon Aave V2 Pool, causing USDT/BTC/ETH/MATIC assets worth up to 120 million to become inaccessible.https://t.co/ArtYvrLX9N@AaveAave

— mookim.eth (@mookim_eth) May 19, 2023

Know More: Uniswap vs AAVE

What is MakerDAO? 

MakerDAO is a decentralized organization working to stabilize the crypto economy built on the Ethereum network. The DAO operates a decentralized lending platform that enables borrowing and lending among users through the use of stablecoin. Maker protocol uses a two-token mechanism: DAI, stablecoin(soft-peg of US dollar), and MKR, governance token.

Users can borrow funds by depositing their crypto assets(approved by platform governance) into a smart contract called Collateralized Debt Position(CDP), which generates DAI stablecoin for borrowing. The amount of DAI a user can borrow depends upon the collateralization ratio of the collateral asset/DAI pair.

Key Features of MakerDAO

• Once a user repays the loan along with interest against collateral, borrowed DAI stablecoin is destroyed, reducing the total DAI supply in the MakerDAO ecosystem.
• If the collateralization ratio is below the determined amount, the Maker protocol liquidates the user’s CDP assets to maintain the system’s stability.
• MakerDAO protocol leverages smart contracts to ensure transparency and security of transactions on the platform. 
• MKR token holders can participate in the community decisions to manage DAI and maintain the protocol.
• DAI stablecoin is integrated with over 400 applications, including wallets, games, DeFi platforms, etc.

Latest News on MakerDAO 

• The MakerDAO has published “5 phases of Endgame” to enhance efficiency, resilience, and participation in the Maker ecosystem. The publication points out a full rebrand of Maker Ecosystem, proposing an upgraded version of two tokens and employment of AI Tools in protocol governance.

The first SubDAO category has been described in depth.

In the latest Endgame update, a detailed explanation is provided to delineate the nature and purpose of Allocator SubDAOs within the new MakerDAO structure.

→ https://t.co/TBPZcDdJzQ pic.twitter.com/1hVwqCrDVl

— Maker (@MakerDAO) May 17, 2023

What is Compound? 

The Compound is a DeFi lending protocol built on the Ethereum blockchain that allows users to borrow and lend crypto assets. COMP is the native governance token of Compound protocol that provides users the right to vote or delegate votes on changes and development of the protocol. One feature of Compound that sets it apart from others is its algorithmic autonomous interest rate protocol. The protocol uses the supply and demand of each asset in the platform to determine interest rates that borrowers pay, and lenders receive.

Another feature of the Compound is the tokenization of assets locked in the protocol. When a user deposits crypto assets as collateral, the loan is issued in new crypto, cTokens. cTokens are ERC-20 tokens, pegged to the underlying asset’s value; for example, for submitting USDC stablecoin in the protocol, the user receives an equivalent amount of cUSDC. Users can redeem cTokens for deposited crypto by repaying the debt with interest in underlying crypto.

Key Features of Compound

• Issued cTokens can be integrated, used, and traded in a wide range of DeFi projects and protocols, including trading, lending platforms, and more.
• Compound’s over-collateralization and algorithmic interest rates ensure the protocol never runs into debt.
• The protocol also has a built-in reward system to encourage user participation in the platform.
• Compound protocol decision-making changes are run and implemented by the governance of COMP token holders.
• The protocol uses a system of smart contracts, which are openly accessible, allowing protocol transparency.

Latest News on Compound 

• The Compound protocol has successfully integrated with the Arbitrum blockchain, allowing users to borrow ARB, GMX, WETH, and WBTC as collaterals to borrow USDC on Arbitrum. 

Compound III is live on @arbitrum!

You can now use ARB, GMX, WETH, and WBTC as collateral to borrow USDC on Arbitrum.

To view the new market, select Arbitrum from the market selector in the Compound interface or click the link below: https://t.co/uzVunF4qBT pic.twitter.com/DuBUqzpHWl

— Compound Labs (@compoundfinance) May 16, 2023

Comparing MakerDAO vs AAVE vs Compound 

Key Differences between Aave vs MakerDAO vs Compound 

Let’s explore the key differences between three DeFi lending platforms, AAVE and MakerDAO, and Compound:

• Native token: AAVE is a native governance token for Aave, similarly MKR for MakerDAO and COMP, a governance token for Compound protocol. 
• Interest Rates: Aave uses the Utilisation rate of crypto assets to determine interest rates, MKR holders define interest rates for MakerDAO, and Compound uses algorithms to calculate interest rates based on supply and demand of each asset.
• Collateralized Asset: While Aave offers support for various crypto assets to borrow, MakerDAO uses DAI as collateral, and Compound utilizes cTokens to facilitate lending and borrowing services.
• Liquidation system: Aave rewards liquidators to close debt positions in case of under-collateralization, when the borrowed amount is greater than collateral value. MakerDAO uses a collateral ratio for the same, and if the ratio is below the threshold, funds are liquidated automatically by the protocol. The Comptroller, the Compound’s risk management layer, maintains the protocol’s collateral risk, and liquidators are incentivized to liquidate under-collateralized accounts.
• Total Value Locked: MakerDAO has over $6.84 billion in Total Value Locked, while Aave protocol TVL is $5.19. And Compound TVL is $1.82 billion.
• Governance: AAVE token holders propose and maintain the development of Aave, the MKR holder community participates in decision-making changes and defining interest rates of protocol, and COMP holders are responsible for developing and sustaining Compound protocol.

AAVE Price Prediction

• AAVE price today is trading at $64.05, with a 24-hour trading volume of $28,137,379. In the last 24 hours, The AAVE price has seen a drop of about 1.36%. AAVE’s market cap is $921991,292 as of May 22, 2023.
• AAVE has broken its major support level of $66.9 recently and it is nearing to form a death crossover of 50 and 200-day exponential moving averages on 1-Day chart, representing downtrend.
• AAVE price has been seeing slight improvement since May beginning and is expected to reach the $70 mark soon

Read More: Aave Price Prediction

MakerDAO Price Prediction

• MKR price today is trading at $624.40, with a 24-hour trading volume of $11,041,832. In the last 24 hours, The MKR price has seen a drop of about 0.22%. MKR’s market cap is $610,308,119 as of May 22, 2023.
• MKR has broken the support level of $630.57 recently and a death crossover of 50 and 200-day exponential moving averages has formed on the on 1-Day chart.
• There seem to be slightly bearish sentiment at present, but with upcoming developments in the project and continuous support, MKR might trade around $700-$750 by the end of 2024.

Compound Price Prediction

• COMP price today is trading at $34.66, with a 24-hour trading volume of $258,607,178. In the last 24 hours, The COMP price has seen a drop of about 2.23%.  COMP’s market cap is $258,607,178 as of May 22, 2023.
• COMP has also broken the support level of $38.25 a few days ago and its major support is currently residing at $30.5
• However, looking back at price movements, COMP is believed to hit the $45 within a few months.

Additional Read: Compound Price Prediction

Should you buy AAVE or MakerDAO or Compound? 

The DeFi market has shown immense growth globally, withstanding the volatility and pressure of the tumbled crypto market of 2023. DeFi lending protocols are believed to develop further and provide users with a better crypto lending yield in upcoming times. Aave, MakerDAO, and Compound are three of the most popular DeFi lending platforms among users. Thus, one can consider investing in AAVE, MKR, or COMP if he/she has carried out deep research and fundamentals and is applying risk management.

How to Invest in AAVE and MakerDAO and Compound?

Investing in AAVE, MakerDAO, or Compound is extremely simple & safe with the CoinDCX App. All you need to do is register on the platform. To register, follow the below-mentioned steps:

• Download CoinDCX App
• Register by entering your details.
• Complete your KYC
• Once your profile is validated, fund your wallet and buy AAVE or MKR, or COMP.