Footprint: Aave vs Compound Battle, Who Will Stand Out?

Since Compound sparked the DeFi summer last year, the entire DeFi world has seen significant development, with lending projects leading the way in total liquidity among blue-chip DeFi projects. A year later, the beloved DeFi "ghost" Aave has overtaken Compound to become the leader in the lending space. So, we will soon explore the two most complex and valuable applications in DeFi lending, and see what basis there is for Aave surpassing Compound.

Below, we will analyze their current status and development trends by comparing several key indicators.

Total Value Locked (TVL) of Aave and Compound

According to Footprint data, as of October 20, 2021, the Total Value Locked (TVL) in the DeFi market has exceeded $200 billion, reaching $241.575 billion. Aave leads with a TVL of $18.89 billion, followed by Curve ($18.01 billion) and MakerDAO ($16.4 billion) in second and third place, respectively, while Compound ($12 billion) ranks fifth. The rankings show that Aave has surpassed Curve, reaching a historic high and securing the top spot.

In the lending sector, Aave has consistently maintained a significant lead over Compound in TVL over the past six months. This is mainly due to its innovative business model and adherence to compliance (having obtained an FCA crypto asset operating license), actively aligning with traditional financial models. This has allowed Aave to overtake Compound in market share within a few months. Compared to Aave, Compound has shown slower innovation and new business expansion, with their growth trend stabilizing in 2021.

Market Cap Comparison

In the comparison between Aave and Compound, the market cap indicator highlights the superiority of Aave. According to Footprint data as of October 20, 2021, Compound's market cap is $1.97 billion, which is 2.1 times less than Aave's. This demonstrates that Aave's product design is superior to Compound, a fact reflected in its market capitalization. With an innovative business model, Aave's market cap has remained above $4 billion, further solidifying its position in the DeFi lending sector.

Furthermore, in terms of circulating supply, COMP has a circulation rate of 61%, while AAVE is at 82%, indicating that Aave's platform has a higher circulation rate than Compound, resulting in less inflationary pressure. Additionally, Aave has not experienced any major security incidents in the past, indicating a more robust security mechanism and making it more attractive to depositors. Aave's token also holds more appeal in terms of circulation rate. Enhancing the platform's value is a key aspect of managing market capitalization. Therefore, Compound faces certain difficulties in surpassing Aave in market cap in the short term.

Aave Dominates in Deposit Volume

Based on Footprint data, Aave's deposit volume (approximately $21 billion) has consistently been higher than Compound's deposit volume (approximately $18 billion). In the early stages, Compound offered mining subsidies for lending, meaning that Compound previously increased deposit returns and lowered lending rates to compete with Aave. Now, with Aave's initiation of lending mining, coupled with Polygon's subsidies for Aave's deposits and loans, Compound's rate advantage has essentially disappeared, showcasing Aave's ecosystem bargaining power.

Another crucial point is that while Aave's team emphasizes innovation, they also pay close attention to risks, demonstrating good resilience when faced with challenges and making timely product adjustments. In my opinion, higher security levels in Aave result in lower probabilities of depositors facing losses.

Can Aave Players Borrow More Assets than Compound?

Data from the past month shows that Aave's borrowing balance has remained stable, consistently above $8.2 billion daily, while Compound's borrowing balance has stayed between $5 billion to $7 billion, with overall minor fluctuations. In summary, Aave's borrowing balance far exceeds that of Compound.

Both are leading DeFi projects, each with their own unique characteristics. Compared to Compound, Aave supports a greater variety of tokens, indicating that with the same amount of collateral, Aave players can borrow more assets, resulting in higher available liquid funds. Aave also has some innovative advantages in certain interest rate agreements, such as uncollateralized flash loans, interest rate swaps, and credit line delegation. However, Aave's lending rates and borrowing fees are relatively higher, which is a drawback.

Aave and Compound support a variety of cryptocurrencies for users to choose from, including stablecoins like DAI, USDC, USDT, as well as non-stablecoins like WBTC, UNI, etc. Aave users mainly collateralize ETH to borrow USDC, DAI, and USDT, while Compound users primarily collateralize ETH to borrow DAI and USDC, with DAI having slightly higher demand than USDC.

Nevertheless, Aave is a rare project that has obtained permission in developed countries like the UK to freely exchange stablecoins in the region. With a deeper exploration in terms of security, Aave has a more robust security mechanism compared to Compound, making it less susceptible to risks during extreme market conditions.

How Do Aave and Compound Differ in Liquidation Methods?

Currently, there are two traditional liquidation methods: one represented by Maker Dao's auction format, and the other utilized by Aave and Compound, which operate on a first-come, first-served basis. Compound has a liquidation threshold of 75% and sets a borrowing rate; once it reaches 100%, liquidation is triggered, with only 50% of Compound's assets being liquidated. Aave, on the other hand, provides a 5% safety buffer, making it more user-friendly and preventing many newcomers from falling into pitfalls.

Both of these liquidation methods may have some efficiency issues. Liquity, however, presents a more innovative liquidation mechanism different from the traditional methods of Maker Dao, Aave, and Compound. For more information on Liquity, you can refer to the article "Footprint: Can Liquity's Mechanism Really Achieve a Comeback?"

Conclusion

In summary, Aave seems poised to maintain its advantage over Compound, primarily due to the following reasons:

Compound lags significantly behind Aave in terms of innovation and the speed of new business expansions. Whether in the variety of tokens in the lending market or innovative features like uncollateralized flash loans, AMM markets, and the introduction of credit line delegation, Compound's progress is notably slow and conservative.

On October 19, 2021, Aave achieved a historic high in TVL, securing the top spot. This achievement is attributed to the excellent team behind Aave, which maintains a leading position in innovation while prioritizing product strategy security and risk control.

Aave is advancing faster in compliance compared to Compound, potentially enabling smoother business expansion among the public and institutions.

With its advantages, Aave has experienced rapid growth over the past year, surpassing Compound and other protocols to become the most popular lending protocol in DeFi. It continues to maintain its lead and innovative business model. For other lending protocols to challenge Aave, they cannot simply follow Aave's path; they must achieve a breakthrough through more disruptive business models or original code to surpass Aave.

For further insights into the Aave project, you can read "Footprint: Aave, the King of DeFi Lending – Serendipity or Preparation?"

The content provided is solely for personal opinions, reference, and discussion, and does not constitute investment advice. Feedback is welcome in case of any clear misunderstandings or data errors.

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