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Top 3 Lending Protocols You Need to Know in 2023
Learn about Aave, JustLend, and Compound Finance.
Lending Protocols enable the lending & borrowing of crypto assets.
The top 3 Lending Protocols and their TVL (Total Value Locked) are:
Aave (TVL = $5.5 billion)
JustLend (TVL = $3.7 billion)
Compound Finance (TVL = $2 billion)
Note: Figures are from DeFiLlama as on 30 March 2023 and may be rounded off.
Aave (AAVE) is 2 things - a decentralized non-custodial liquidity market protocol as well as a crypto token.
As a protocol, Aave enables the lending and borrowing of crypto.
Lenders deposit funds in a smart contract. These funds can be withdrawn on demand. These funds can also be exported as aTokens which can be moved and traded as an Ethereum token.
Borrowers can borrow in 2 ways:
in an overcollateralized manner, or
in an undercollateralized manner using "flash loans".
Flash loans allow anyone to borrow any amount of assets without the need to provide any collateral. But the loan and interest must be repaid within one "block transaction".
The Aave Protocol is very popular since it is open source and enables anyone to interact with it using:
a user interface client,
Application Programming Interface (API), and
directly with Ethereum smart contracts.
One challenge is that interacting with Aave requires Ethereum transaction fees to be paid.
As a token, AAVE gives holders discounted fees and also serves as a governance token by giving holders a vote in the protocol's development. AAVE can also be staked.
JustLend enables fund pools whose interest rates are determined by an algorithm based on the supply & demand of TRON assets.
JustLend DAO offers decentralized financial services for digital assets.
3. Compound Finance
Compound enables users to deposit crypto into pools and earn interest. Borrowers take secured loans from Compound pools by depositing collateral. If this collateral falls below a threshold, the loan is automatically liquidated.
The protocol distributes COMP tokens daily as rewards to active lenders and borrowers. In essence, users tend to accrue COMP tokens as they participate in the lending and borrowing economy of the Compound ecosystem.
Anyone can autonomously create proposals by locking 100 COMP in an address. The proposal can relate to changes in:
The assets' collateral factor
Interest rate models
Addition or removal of markets
Other parameters used by the Compound protocol