DeFi Lending Platforms: Aave vs Compound
Knowledge Popularization Lesson Twenty-Seven
The following content requires 2-3 minutes of reading
Aave and Compound are decentralized finance (DeFi) lending platforms based on the Ethereum blockchain that allow users to borrow and lend cryptocurrency assets without traditional intermediaries.
Here’s how they operate:
Aave: Users deposit cryptocurrency assets into Aave's liquidity pool and receive aTokens (e.g., depositing DAI earns aDAI), which accrue interest in real-time. Borrowers can borrow assets from the pool, requiring over-collateralization (e.g., using ETH to collateralize borrowing DAI) and paying interest. Aave supports “Flash Loans,” which are instant loans that require no collateral and must be repaid within the same transaction, suitable for arbitrage and other scenarios. Interest rates are determined by supply and demand and are dynamically adjusted by algorithms. Aave is governed by the governance token AAVE, and its security relies on smart contract audits.
Compound: Users deposit assets into Compound's funding pool and receive cTokens (e.g., depositing ETH earns cETH), which represent deposits and accumulate interest. Borrowers can lend out other assets using over-collateralization, with interest rates determined by market supply and demand, automatically adjusted by algorithms. A distinguishing feature of Compound is that both lenders and borrowers interact through cTokens, with the platform transparently recording all transactions. The governance token COMP grants holders voting rights to determine protocol upgrades. In terms of risk management, Compound ensures collateral covers debt through a liquidation mechanism; if the value of collateral falls, the system automatically liquidates it.
Summary
Aave and Compound provide users with flexible lending services through decentralized liquidity pools. Aave attracts advanced users with flash loans and multiple interest rate options, while Compound is suitable for newcomers with its straightforward model. Both have their advantages in the DeFi ecosystem, and the specific choice depends on user needs and risk tolerance.
Recommendation: Understand collateral requirements before use, monitor market fluctuations, and choose an appropriate interest rate model. For the latest updates, refer to the official documentation of Aave (https://aave.com) and Compound (https://compound.finance).
