Aave vs Compound, what is the difference?

Aave vs Compound is one of the most common comparisons in decentralized lending. Both are long-running protocols that hold pools of tokens in smart contracts, pay interest to suppliers and charge interest to borrowers, and both are governed by holders of their own tokens. The differences are in design details that change how a position behaves. Background on each is in what Aave is and what Compound is.

How do Aave and Compound markets differ?

Compound's documentation says Compound III lets users supply crypto assets as collateral in order to borrow a single base asset, and the first deployment, on Ethereum, used USDC as that base asset. Each market is therefore built around one borrowable token with its own list of accepted collateral. Users can also simply supply the base asset to earn interest.

Aave works with pools of many assets on the same market, so a user can supply one token, such as ether, and borrow another, such as its GHO stablecoin, as in Aave's own example.

Does collateral earn interest on Aave and Compound?

On Compound III, no. Its documentation states that collateral assets that are supplied do not earn interest, while the base asset earns interest at the current supply rate when an account's balance is positive. On Aave, the help center says supplying tokens lets users earn interest and also use those supplied tokens as collateral, with balances growing at the current supply rate. That difference is one reason the two are often compared.

How does liquidation work on Aave vs Compound?

Aave measures each position with a health factor, explained in what a health factor is. When it falls below 1, a liquidator can repay up to 50% or up to 100% of the debt, depending on how low it is and how large the position is, and receives collateral plus a liquidation bonus.

Compound III uses two sets of percentages. Borrow collateral factors cap how much a new loan can be, and separate, higher liquidation collateral factors decide when an account can be liquidated, giving a price buffer. When an account crosses that line, a liquidator calls a function that "absorbs" it. The protocol takes the collateral, pays its value minus a penalty back to the user in the base asset, and clears the debt, using its own reserves. The protocol then sells the absorbed collateral.

Which is safer, Aave or Compound?

Neither protocol removes the main risks of DeFi lending, which include price swings that trigger liquidation, flaws in smart contract code, and errors in the price feeds both depend on. Parameters on both are changed by governance votes. The general risks are covered in crypto lending and borrowing.

This comparison describes how each protocol works as documented and does not recommend either.