Aave vs Compound
Aave vs Compound compared: how each lending protocol works, design differences, governance tokens, supported networks, track record and the risks to weigh.
Aave and Compound are both decentralized lending protocols where users supply crypto to earn variable interest and borrow against collateral, governed by holders of their tokens, AAVE and COMP. The main differences lie in design: Aave offers a wide set of assets and features in shared pools, while Compound's newer version (Compound III) isolates each market around a single borrowable asset, such as a stablecoin.
Both are among the oldest and most widely used protocols in DeFi, so comparing them is a good way to understand how lending protocols differ beneath similar interfaces.
Background
Compound was founded by Robert Leshner and Geoffrey Hayes and launched on Ethereum in 2018. Its 2020 distribution of the COMP governance token to users helped spark the "DeFi summer" yield-farming boom. Compound III, also called Comet, was launched in 2022 with a simplified, isolated design.
Aave began as ETHLend, founded by Stani Kulechov, and relaunched as Aave in 2020 with a pooled lending model. It has since released several major versions and expanded to many networks. Our explainers what is Aave and what is Compound go deeper.
How They Compare
| Feature | Aave | Compound (III) |
|---|---|---|
| Lending model | Shared pools; supply many assets, borrow many assets | Isolated markets; borrow one base asset per market |
| Collateral earns interest? | Usually yes, supplied assets earn interest | Collateral generally does not earn interest; base-asset suppliers do |
| Interest rates | Variable, utilization-based | Variable, utilization-based |
| Flash loans | Yes | Not a core feature |
| Special modes | Efficiency mode for correlated assets, isolation mode for riskier assets | Per-market collateral settings |
| Governance token | AAVE | COMP |
| Backstop | Safety module plus reserves | Protocol reserves |
| Networks | Ethereum and multiple other networks | Ethereum and multiple other networks |
Features evolve with new versions, so check each protocol's official documentation for current details.
Design Differences in Practice
Aave's shared pools
In Aave, you can supply several assets and borrow several others at once. Your overall position is summarized by a health factor. This is flexible: you can, for example, supply ETH and a stablecoin and borrow a different stablecoin. Aave also adds features such as efficiency mode, which allows higher borrowing power when collateral and debt are closely correlated, and isolation mode, which limits how much can be borrowed against newer or riskier assets. For a related outlook, read Aave price prediction 2026–2027.
Compound III's isolated markets
Compound III takes a narrower approach. Each market has one base asset that can be borrowed, such as USDC, and a list of approved collateral assets. Only the base asset earns supply interest. This isolation limits how problems in one market spread to others and makes risk easier to reason about, at the cost of flexibility.
Governance Tokens: AAVE vs COMP
Both protocols are governed on-chain by token holders who vote on proposals, such as adding assets, changing risk parameters or upgrading contracts.
- AAVE holders vote on Aave governance. AAVE can also be staked in the safety module, where it may be used to cover shortfalls in an emergency, earning rewards in exchange for that risk.
- COMP holders vote on Compound governance. COMP was distributed to users of the protocol and is primarily a governance token.
Governance tokens give influence, not a guaranteed share of revenue, and their prices can be volatile. Read governance tokens explained for more. Live market data for both is available on their coin pages.
A Worked Example
Imagine you hold ETH and want to borrow a stablecoin without selling.
On Aave, you supply ETH to the pool. Your ETH typically earns a small supply rate while it sits there as collateral. You then borrow the stablecoin up to a limit set by ETH's loan-to-value ratio. If you also supplied another asset, it adds to your borrowing power, and all positions share one health factor.
On Compound III, you open the market for that stablecoin and supply ETH as collateral. Your ETH generally does not earn interest in this market. You borrow the stablecoin up to ETH's collateral factor. Your position in this market is separate from any position in another Compound III market.
In both cases, if ETH falls far enough, part of your collateral is liquidated. The practical differences are whether your collateral earns interest, how your positions interact and which assets are accepted. The specific numbers — loan-to-value ratios, liquidation thresholds and penalties — are set by each protocol's governance and differ by asset and network.
How to Use Either One Safely
- 1Bookmark the official app URL from the protocol's documentation.
- 2Start with a small amount to learn how the interface reports your position.
- 3Borrow well below the maximum and set up alerts for your health factor or collateral price.
- 4Review and revoke token approvals you no longer need.
Risks Shared by Both
- Smart-contract risk. Bugs can lead to losses despite audits.
- Oracle risk. Both rely on price feeds; faulty prices can trigger liquidations.
- Liquidation risk. Borrowers can lose collateral in sharp market drops — see liquidations in DeFi.
- Governance risk. Token holders can change parameters, and concentrated voting power can steer decisions.
- Asset risk. A stablecoin depeg or collateral token failure can affect markets.
- Phishing. Fake Aave and Compound sites appear in search ads. Reach the apps through official links only.
Which One Fits Which User?
- Borrowing a stablecoin against ETH or BTC-backed tokens with simple risk: Compound III's isolated markets are straightforward.
- Using many assets or advanced features such as flash loans: Aave offers more flexibility.
- Supplying idle assets for interest: Both work; compare current rates, supported networks and the specific market's risk.
Neither choice removes the need for research. Our DeFi lending guide explains collateral, health factors and liquidation in plain language.
Bottom line
Aave and Compound solve the same problem — permissionless, over-collateralized lending — with different designs. Aave favors breadth and features in shared pools; Compound III favors isolation and simplicity. Compare the specific market, network and parameters you plan to use, borrow conservatively and treat both as carrying real smart-contract and market risk.
Frequently asked questions
Is Aave or Compound safer?
Both are among the longest-running DeFi lending protocols, with multiple audits and bug bounty programs, and both have operated through severe market crashes. Neither is risk-free. Safety depends on the specific market, network, collateral and parameters you use, so compare those rather than the brand alone.
What is the difference between the AAVE and COMP tokens?
Both are governance tokens that let holders vote on protocol changes such as supported assets and risk parameters. AAVE can also be staked in a safety module that acts as a backstop against shortfalls. COMP is primarily a governance token and has been distributed to users as an incentive.
Can I use Aave and Compound on networks other than Ethereum?
Yes. Both protocols have deployments on Ethereum and on several other networks, including layer-2 networks. Supported assets, rates and risk parameters vary by deployment, and liquidity on smaller deployments can be thinner. Always confirm you are using an official deployment listed in each protocol's documentation before depositing funds.
Do Aave and Compound pay fixed interest?
Mostly no. Both mainly use variable interest rates that change with how much of each pool is borrowed. Rates you see can rise or fall quickly as market conditions change, so a rate that looks attractive today may not last. Check them regularly if you supply or borrow, and plan for rates moving against you.