Aave (AAVE) and Compound (COMP) are two of the most widely used decentralized applications (dApps) for cryptocurrency lending. Operating within the thriving decentralized finance (DeFi) sector—valued at over $200 billion—these platforms collectively manage more than $30 billion in assets. This comparison breaks down their core features to help you decide which platform better aligns with your investment and lending needs.
Both Aave and Compound, launched in 2018 and 2020 respectively, are recognized as leading DeFi lending protocols and have facilitated billions in loan volume. Aave leads in Total Value Locked (TVL) with $21 billion, more than double Compound’s $9 billion. Similarly, AAVE’s market capitalization sits at $2.2 billion, while COMP is valued at approximately $800 million.
Each protocol is fully decentralized, leveraging smart contracts to automate lending and borrowing without centralized intermediaries. Transactions occur primarily on the Ethereum (ETH) mainnet, though Aave also supports several other networks. Annual Percentage Yields (APY) vary based on the cryptocurrency being supplied or borrowed.
Overview of Aave and Compound
- DeFi enables users to trade, lend, and earn yield on crypto assets without traditional intermediaries.
- Both platforms allow users to supply assets like ETH or stablecoins to earn interest or borrow against their holdings.
- APYs for popular stablecoins like Tether (USDT) range between 1% and 30%, with both protocols offering competitive and often comparable rates.
- Total Value Locked (TVL) measures the total assets deposited in a protocol. Aave’s TVL of $21 billion significantly outpaces Compound’s $9 billion.
- Aave supports multiple blockchains, including Ethereum, Avalanche (AVAX), Fantom (FTM), and Harmony (ONE), while Compound is exclusive to Ethereum.
- Aave permits up to 75% loan-to-value (LTV) ratios, meaning a $10,000 deposit allows borrowing up to $7,500. Compound’s LTV is lower, at 66%.
- Aave offers unique flash loans—uncollateralized loans executed within a single transaction block—primarily used by arbitrage traders. Compound does not support flash loans.
- The AAVE token has provided higher returns for investors over the past two years compared to COMP.
What Is Aave (AAVE)?
Aave is a decentralized peer-to-peer lending platform built initially for Ethereum. Founded by Stani Kulechov, the project began as ETHLend before rebranding to Aave in 2020. It has since grown into one of DeFi’s largest lending platforms.
With a TVL of $21 billion, Aave supports a wide range of assets across multiple networks. Its native token, AAVE, trades around $165 and is used for governance—allowing holders to vote on Aave Improvement Proposals (AIPs).
Aave’s V3 update expanded beyond Ethereum to include networks like Avalanche, Fantom, and Harmony, as well as Ethereum Layer-2 solutions such as Polygon (MATIC), Arbitrum, and Optimism. This multi-chain approach offers users flexibility and lower transaction fees.
The platform uses decentralized oracles from Chainlink (LINK) for real-time asset pricing. Aave’s front end is hosted on IPFS, ensuring censorship resistance and decentralization.
Users can choose between variable and stable interest rates. For example, borrowing USDT might carry a variable APY from 3% to 11%, while stable borrow rates can be around 7%. Longer lending periods generally result in higher interest earnings for suppliers.
Aave’s flash loans are a standout feature, enabling instant, collateral-free borrowing for arbitrage and other advanced strategies. These loans must be repaid within the same transaction, reducing risk for the protocol.
What Is Compound (COMP)?
Compound is a decentralized lending protocol similar to Aave. Developed by Compound Labs, a California-based tech company, it initially offered centralized lending services before transitioning to a fully decentralized model.
Compound operates exclusively on the Ethereum mainnet. Users can lend or borrow a variety of ERC-20 tokens, including major stablecoins and cryptocurrencies. The platform’s dashboard clearly displays net APY for suppliers.
To use Compound, individuals need a Web3 wallet like MetaMask and sufficient ETH for gas fees. One limitation is its lack of multi-chain support, which may restrict its user base compared to more expansive protocols.
The COMP token, trading near $125, is used for governance. Holders can propose and vote on changes to the protocol, influencing its future development.
Aave vs. Compound: Which Platform Is Better?
Aave and Compound together account for about 15% of the total DeFi TVL. We can evaluate which platform performs better across several key metrics:
Collateral Requirements
Both platforms require over-collateralization for loans. Aave allows up to 75% LTV, while Compound permits borrowing up to 66% of the collateral value. This means Aave offers slightly more capital efficiency for borrowers.
- Example: A $100,000 USDT deposit allows borrowing up to $75,000 on Aave vs. $66,000 on Compound.
- Winner: Aave
APY Comparison
APY varies based on the asset and market conditions. Generally, both platforms offer competitive but fluctuating rates.
- Supplying USDT: Aave offers around 2.73% APY, while Compound offers approximately 3.07%.
- Borrowing USDT: Aave’s rate is about 3.68%, compared to Compound’s 4.41%.
Rates are asset-specific. Some tokens may yield better returns on Aave, while others perform better on Compound. Users should compare rates for their specific assets before deciding.
Total Value Locked (TVL)
TVL is a key indicator of a protocol’s popularity and trust. Aave’s $21 billion TVL is more than double that of Compound’s $9 billion. This may be attributed to Aave’s multi-chain approach, wider asset support, and innovative products like flash loans.
- Winner: Aave
Network Support
Ethereum’s high gas fees have driven demand for alternative networks. Aave supports Ethereum, Avalanche, Polygon, Fantom, Harmony, Arbitrum, and Optimism. Compound remains exclusive to Ethereum.
Aave’s cross-chain capability attracts users seeking lower fees and more options. For example, Avalanche users can supply USDT on Aave without Ethereum’s high transaction costs.
- Winner: Aave
Token Performance
Both tokens are used for governance, but AAVE has demonstrated stronger market performance and has a larger market cap than COMP. Aave’s recent V3 upgrade and proposed native stablecoin, GHO, could further boost its utility and value.
Frequently Asked Questions
What is the main difference between Aave and Compound?
Aave supports multiple blockchains and offers flash loans, giving it a broader scope and appeal among advanced users. Compound remains Ethereum-focused, with a simpler user experience but fewer features.
Can I lose money using DeFi lending platforms?
Yes. While lending is generally low-risk, smart contract vulnerabilities, market volatility, and sudden collateral liquidations can lead to losses. Always understand the risks before depositing funds.
Which platform offers higher yields?
Yields change constantly based on supply and demand. Generally, both platforms offer similar APYs for comparable assets. Check real-time data before making decisions.
Do I need to use the native tokens (AAVE or COMP) to use these platforms?
No. You can lend or borrow major cryptocurrencies like ETH, USDT, or USDC without holding AAVE or COMP. The governance tokens are for voting and staking, not mandatory for basic usage.
What are flash loans used for?
Flash loans allow developers and traders to borrow large amounts without collateral, provided the loan is repaid in the same transaction. They are often used for arbitrage, swapping, or refinancing.
Is my funds’ safety guaranteed on Aave or Compound?
No platform can guarantee absolute safety. However, both have undergone multiple audits and are considered among the more established and secure protocols in DeFi.
Conclusion
Based on TVL, collateral flexibility, multi-chain support, and innovation, Aave emerges as the more versatile and widely adopted platform compared to Compound. Both protocols offer competitive APYs, but Aave’s additional features—such as flash loans and cross-chain functionality—provide distinct advantages for both beginners and advanced users.
Aave’ recent V3 upgrade and proposal to launch its native stablecoin, GHO, may further strengthen its ecosystem and token value. That said, Compound remains a reliable, straightforward option for those exclusively operating on Ethereum.
Ultimately, the best platform depends on your specific needs: which assets you’re using, whether you value multi-chain access, and if you require advanced DeFi strategies. For a deeper look into how these platforms work and their potential returns, 👉 explore real-time lending rates.