Aave vs. Compound: Head-to-Head Comparison

Filip Dimkovski
By Filip Dimkovski
Marcel Deer
Edited by Marcel Deer

Published Invalid date.

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What Is Aave and How Does It Work?

Comparing the best lending platforms can be difficult, but Aave and Compound provide a range of features that can assist crypto enthusiasts. Aave is one of the most popular decentralized finance protocols on Ethereum. It allows its users to deposit and borrow a wide variety of assets, with interest rates automatically set by the market, rather than by centralized lenders, which is the case in traditional finance.

One of the most unique features of Aave is its “flash loans, which allow users to borrow assets without having to put up any collateral. This makes the platform the ideal place to get capital if you are just starting out in decentralized finance and don't have any assets to put up as collateral.

Aave also has a useful reserve system, which allows its users who deposit their assets on the platform to earn interest. This reserve system allows Aave to offer such competitive interest rates on deposited assets.

In addition to the flash loans and one-of-a-kind reserve system, Aave also has other features that make it attractive to users, including:

  • No KYC requirements: Aave does not require users to go through a KYC process to use the platform. This makes it attractive to users who value privacy, a pillar of blockchain technology.
  • A wide variety of assets: The platform supports a wide variety of assets, including traditional cryptocurrencies, stablecoins, and fiat cash.
  • Competitive interest rates: Aave offers some of the most competitive interest rates in the industry.

What Is Compound and How Does It Work?

Just like Aave, Compound is a decentralized finance protocol that allows users to deposit and borrow various assets. However, unlike Aave, Compound does not offer flash loans. Compound provides many attractive features, one of which is its COMP token, which gives users voting rights on the platform. This allows its holders to have a say in how the platform is run and what features are added.

The similarities between Aave and Compound are plenty, as both the platforms don't have a KYC in place; both offer a wide variety of assets and competitive interest rates. That being said, the main difference between the two lies in the fact that Aave offers flash loans and Compound does not. Additionally, the collateral requirements for regular loans on Aave are lower than on Compound. Both platforms provide lending and borrowing services.

Aave vs. Compound Interest Rates

Since the interest rates on Aave and Compound are determined by the market, this means that the rates can fluctuate based on the demand for the assets being deposited or borrowed. Aave offers a variety of interest rates for different assets. For example, the interest rate on USDC is currently 2.35%, while the interest rate on WETH (wrapped ETH) is 3.75%.

Compound, on the other hand, offers slightly higher interest rates for all assets. The current Compound distribution APY is 2.5%, but the rate will probably be different when you’re reading this article. Which platform offers the better interest rates depends on the asset being deposited or borrowed. However, Compound generally seems to provide slightly more competitive interest than Aave.

Aave vs. Compound Market Caps

The market cap of a cryptocurrency is the price of the coin multiplied by the circulating supply. In this context, the circulating supply is the number of coins that are currently in circulation. The market cap of Aave is just below $1 trillion, and the circulating supply is 13 - 14 million AAVE. This gives the Aave platform a market cap per coin of around $71.

On the other hand, the market cap of Compound is around $300 million, and the circulating supply is around 7 million COMP. This gives Compound a market cap per coin of $42.

The Token Performance and Collateral Requirements of Aave & Compound

The token performance of a cryptocurrency is the price of the coin over time. The collateral requirements are the assets that must be deposited in order to borrow a certain asset.

The token performance of Aave has been fairly strong since its launch in January of 2018. The price of AAVE has increased from $0.28 to its current price of $68.40, which is a gain of more than 25,000%. Its all-time high is $630 per coin. Moreover, the collateral requirements on Aave are also fairly low. For example, the collateral requirement for borrowing USDC is 1.75x, while the collateral requirement for borrowing WETH is 2x.

Compound's price has also climbed steadily since its debut in September of 2018. The current price of COMP is $50, up from $0.36 when writing this article. This represents a gain of over 13,000%. The COMP coin’s ATH was set in November 2021, being just above $850 per coin. Regarding its DeFi features, Compound has very minimal collateral requirements as well. The collateral requirement for borrowing USDC is 1.5x, whereas the collateral requirement for borrowing WETH is 1.75x. Whether you're margin lending, staking, or trading, Aave and Compound provide a range of services that can support your crypto investment strategy.