Battle of the DeFi Lending Giants: Aave Closing in on Compound

Compound has reigned supreme as DeFi’s most popular lending protocol since its inception in 2018, but according to recent data trends, Aave has a fighting chance to take its crown.

Price-wise, AAVE has massively outperformed COMP since the beginning of 2021. COMP started the year around $145 while AAVE was around $88. As of Feb. 3, both COMP and AAVE are hovering above $480, meaning that AAVE has grown over 450% since the beginning of January, while COMP has grown by a comparatively small (but still impressive) 240%. Market cap metrics tell a similar story.

Currently, Compound’s market cap is $1.7B. Meanwhile, Aave’s market cap is over two times larger at $4.2B. Compound’s fully diluted market cap of $3.7B is slightly closer to Aave’s fully diluted market cap of $5.4B, but the nearly $2B difference between the two is still staggering.

Total Value Locked

Total Value Locked data suggests a similar trend of Aave outperforming Compound. Data on Defi Pulse shows that Aave currently has $4.5B TVL, while Compound is lagging at $3.8B TVL—a $700M difference.

Compound and Aave were neck and neck in TVL through the end of 2020. Both closed the year just under $2B TVL (with Aave only slightly ahead), but Aave has continued to gain momentum over Compound ever since.

It’s worth mentioning that TVL measures supply minus borrowed assets, and Compound’s total supply is closer to $6.6B with $2.8B borrowed. Aave has $467M of loans outstanding, according to data by DeFi Pulse.

COMP makes up $136M, or 2% of Compound’s total supply. By comparison, roughly 33% of Aave’s TVL is in their own AAVE token ($934M in Aave V1 and $464M in Aave V2). According to Aave, these tokens are all user deposits functioning as collateral for stablecoin borrowing. Aave does not allow users to borrow their governance token so as to avoid potential governance attacks wherein someone could leverage borrowed AAVE to gain extra voting power.

Data from Crypto Fees shows that over the past 7 days, users have spent an average of $634k in fees to use Compound, compared to $184k in fees to use Aave. This suggests that despite Aave’s lead in TVL, Compound is still seeing more activity overall.

Users

To be sure, Compound still has way more users than Aave, as measured on Dune Analytics by the number of unique wallets. Of note, users can have more than one wallet so the metrics are somewhat inflated. Still, Compound’s 305k users vastly outnumber Aave’s 39k users (Note: The Dune Analytics data for Aave might only include Aave V1 users. Factoring in Aave V2 users would potentially raise the number.)

While Aave launched over a year after Compound’s inception in late 2018, both protocols saw the majority of their user gains in 2020. Aave started from scratch, seeing a relatively steady user flow that has continued to the present day. Compound, on the other hand, started with around 22k users in January 2020, but then saw a massive jump from mid-October through late December, growing from 50k users to just under 300k. Since the beginning of 2021, however, Compound’s user growth rate (around 5k) has dropped below Aave (around 6k).

Compound’s massive user spike in late 2020 may be attributed to the massive success of their COMP token, which was one of the first incentivization programs in DeFi to reward protocol users with a native token. That said, many other DeFi protocols quickly followed suit, which may explain why the booming numbers have since dropped off.

Compund’s user numbers may also be benefiting from the Earn Compound program on Coinbase which rewards new Coinbase wallet holders with $9 in COMP.

Borrowing Volume

Compound is also dwarfing Aave in borrowing volume, accounting for nearly 77% of the market. Aave’s 23% share is spread out across Aave V1 ($489M) and Aave V2 ($341M). However, Compound maintained roughly 80% to 90% of the borrowing volume share throughout 2020, so their 2021 performance does mark a slight decline.

Compound has a competitive advantage over Aave in borrowing metrics due to its incentivization program that rewards both their lenders and borrowers with COMP. This has resulted in “COMP farming,” wherein some users borrow and lend on Compound at an inflated scale with high interest rates in order to maximize COMP rewards.

When reached for comment, Aave COO Jordan Lazaro Gustave said that Compound’s higher borrowing volume and user numbers are the direct result of their incentivization efforts, and that if Aave introduced a similar governance reward for liquidity providers, their metrics would evolve similarly.

“It’s safe to say that if we remove incentivized behavior (Leveraged borrowing to farm COMP & Inflated unique users thanks to an ongoing Coinbase Earn campaign) the Aave Protocol is outperforming Compound in all aspects,” said Jordan. “I’m actually looking forward to see how outstanding debt numbers evolve when and if liquidity mining starts on Aave.”

Innovation

While both Aave and Compound are conceptually similar protocols, Aave has been quicker to ship additional services. Aave supports over 20 different assets while Compound only supports 11 (including ETH and DAI). Aave also offers stable interest rates while Compound does not.

Aave has spearheaded cutting edge developments in DeFi, including flash loans and delegated credit vaults. In December, Compound announced plans to launch Compound Chain, a stand-alone blockchain which would provide money market functions across multiple chains. It has yet to launch.

Compound founder Robert Leshner didn’t want to comment on specific numbers, but told The Defiant, “Compound and Aave are each hitting their stride; 2021 will be a year of phenomenal growth for both protocols.”

While Aave isn’t necessarily putting Compound out of commission anytime soon, the current metrics do suggest that Aave is gaining major ground on Compound as DeFi’s most popular lending protocol.