Instead of using a third-party intermediary, AAVE runs on the Ethereum blockchain and uses smart contracts to manage assets. So users don’t have to trust any financial institution, instead having faith that the code will execute as it’s intended to do.
To borrow assets on AAVE, users simply deposit collateral in the form of one token, say ETH, to obtain another, say DAI. This allows borrowers to gain exposure to new tokens without owning them outright. There are other features too, such as “flash loans”, or instant loans, plus different types of issuing debt and credit that take advantage of the unique characteristics of blockchain.
Despite its popularity though, AAVE does have its fair share of problems, notably a small list of supported wallets and tokens, a lack of high incentives for users to borrow or lend, and security weaknesses, with flash loans on the platform having been exploited by hackers in the past. The platform has also been criticized for its lack of user-friendliness.
With those problems in mind, here are three DeFi alternatives to AAVE that users may want to consider.
One of the best up and coming DeFi platforms this year is the Venus Protocol, which is an algorithmic money market system built on the BNB Chain, where it serves as the main DeFi lending and credit hub.
Venus boasts a relatively unique architecture that allows it to offer some very special features among borrowing and lending marketplaces.
Like all DeFi platforms, Venus Protocol makes it easy to borrow cryptocurrencies and stablecoins with no credit checks and enjoy rapid issuance, meaning they can obtain the funds almost instantly.
It also provides a way for cryptocurrency holders to earn interest by lending tokens and stablecoins, earning a flexible annual percentage yield in exchange for providing liquidity. With Venus, users can put their crypto assets to use by offering them as collateral to the network. All assets lent are over-collateralized, with the lender receiving a compounded annual percentage yield per block. As for borrowers, they pay interest on the crypto borrowed. The interest rates are established using a curve yield, set according to the demand for that specific asset on the marketplace.
What really sets Venus apart though is its capacity for users to take deposited collateral, not only to borrow other assets, but also to mint the platform’s synthetic stablecoin, VAI, which helps to safeguard the protocol.
Venus describes VAI as the world’s first decentralized stablecoin, which is pegged to the U.S. dollar and backed by crypto assets that include a list of other stablecoins. Users can mint VAI tokens via the underlying collateral they have already deposited to the protocol. Users can do this with half of the remaining collateral they have provided. The minted VAI tokens can then be spent at more than 60 million stores globally using the Swipe Wallet platform, or redeemed as fiat to the user’s bank account.
Other benefits of Venus include rapid, low-cost transactions thanks to the BNB Chain, plus access to a wide range of wrapped tokens and liquidity on the protocol. Venus’s list of supported cryptocurrencies is fairly extensive compared to other DeFi platforms too, featuring popular tokens such as ETH, ADA, DOGE, USD Coin, BNB and, of course, Venus’s native token XVS.
It’s clear that Venus is an extremely scalable DeFi solution and one that offers unique governance through its XVS token. The Venus Protocol’s primary goal is to provide a healthy, fluid, and secure marketplace for users to gain instant access to liquidity and while doing so enable unique incentives to lenders through its unique, synthetic stablecoins. And that is precisely what it has already achieved.
Another emerging DeFi protocol with very hot prospects is PancakeSwap. Launched at the end of 2020, it too is based on the BNB Chain and serves as a trading liquidity protocol just like AAVE.
There are lots of reasons to consider using PancakeSwap as a primary DeFi lending and borrowing platform. Like Venus, it offers fast transaction speeds and low costs thanks to the BNB Chain that supports it. Further, the PancakeSwap platform has been audited by CertiK, a smart contract security firm, which may reassure some users who’re concerned about the security of the platforms they use.
PancakeSwap allows users to trade cryptocurrencies and tokens without any intermediary and retain custody of their tokens. It supports borrowing and lending with all types of BEP-20 tokens, and like Venus, also allows access to other tokens through the Binance Bridge that can be wrapped as BEP-20 tokens and used on the PancakeSwap DEX.
Transactions are facilitated using an automated money maker model that relies on user-provided liquidity pools to enable trades. So, a user who wishes to provide liquidity can deposit tokens into a pool and receive LP tokens in return. Those tokens allow users to reclaim the funds they have deposited. Alternatively, they can take their LP tokens and stake them to earn rewards, or else swap them for other cryptocurrencies.
Another advantage of PancakeSwap is it’s possible to farm tokens such as CAKE and SYRUP. CAKE tokens are provided as rewards to those who lock their LP tokens in a liquidity pool. Users can then take those CAKE and stake them too, receiving SYRUP tokens as a reward. SYRUP tokens provide governance functionality and also serve as lottery tickets, with the potential prize being a huge CAKE windfall.
One final DeFi project worth looking at is Fantom, which is an open-source smart contract platform for digital assets and dApps. The idea with Fantom is that it ensures borrowing, lending, and trading of synthetic assets is kept simple, with the only thing users need to start earning being a Fantom Wallet and tokens to deposit.
Perhaps the most advantageous thing about Fantom is its network architecture that aims to provide a careful balance between decentralization, stability, and security. Transactions on the platform are fast, completed in an average of two seconds, with its speed due to a unique consensus process known as Lachesis, which is an Asynchronous Byzantine Fault Tolerant proof-of-stake mechanism. This enables it to handle thousands of transactions per second, which is far superior to the 15 transactions per second on Ethereum. Not surprisingly then, transaction fees are also incredibly low.
It’s this speed that makes Fantom such an ideal choice for DeFi through its integrated fLend platform. With fLend, users can earn a minimum annual percentage rate of 3.79% and a maximum APR of 11.59%, depending on the amount of FTM tokens they stake and the lock-in period. Users who stake FTM can then mint fUSB tokens, the native stablecoin of Fantom that’s pegged to the U.S. dollar. fUSB tokens can be lent to the liquidity pool in return for interest, or else traded on the fTrade platform for other cryptocurrencies.
As a decentralized platform, Fantom users can also participate in its governance, voting on changes or improvement proposals regarding the network. Voting power is determined by the number of FTM tokens each user holds.