As one of the earliest DeFi use cases, lending has come a long way over the last five years, growing from just $3m in TVL to over $45b today. However, this growth has not come without its challenges, such as flash crashes, liquidity crunches, hacks, or high-profile margin calls.
Yet despite these challenges, DeFi lending continues to thrive, showing the potential for on-chain financial rails. In this piece, we will examine how the DeFi lending market has changed and is evolving.
Originally called ETH Lend, Aave is one of the oldest DeFi apps and today remains the largest lending platform in the market, with over $31b in net deposits across 13 networks. Aave is a DeFi money market that lets users deposit their assets to earn yield and borrow funds against their collateral. It works on a mostly pooled model in which all assets are pooled together in one large pool managed by the community.
This large pool is the protocol’s balance sheet, and the community governs the risk parameters, such as collateral ratios, to maintain the system. Aave has also recently added isolated markets in which certain assets are isolated from the broader Aave collateral pool to isolate the risks of these assets. This allows the protocol to onboard new assets without compromising the safety of the rest of the protocol.
Key Features:
Morpho is the third-largest lending platform in DeFi by deposits and is one of the significant new entrants to the lending space. Its modular design sets Morpho apart from other lending platforms. Users can earn through Morpho Vaults, and vault curators can create lending strategies on top of Morpho’s infrastructure.
Vault creators manage the deposited funds through a transparent public strategy defining the collateral assets they will support. Vault creators can charge a performance fee based on the strategy's performance. Borrowers can select which vaults they would like to borrow from according to the asset type they are lending against and which vault creators support that asset as collateral.
Key Features: