Money Market Deep Dive - Assignment

Look at the LTVs of Aave, Compound, and MakerDAO and talk about the differences. Why does MakerDAO have a much higher LTV than the other two? What incentives are at play that encourages users to deposit more funds into Aave and Compound that are not at play in MakerDAO?

MakerDAO is behind the most widely used algorithmic stablecoin - Dai.

From a composability standpoint, MakerDAO is about as close to the bottom of defi stack as it gets (except for the native ETH coin), and a significant amount of dapps are built on top of MakerDAO => and then plenty of other protocols are built on top of those.

So what you get in effect is a massive amount of the funds flowing down to MakerDAO to collateralize the Dai stablecoin => High LTV.

Whilst this is the case, both Aave and Compound offer opportunities above what MakerDAO does.

Generally speaking, both Aave and Compound offer better lending rates, and the ability to borrow a wider range of tokens.

Aave also offers Flashloan capabilities, and Compound is well known for its yield farming opportunities - none of which are relevant to MakerDAO.

MakerDAO is limited in its functions, however it’s an undisputed defi primitive on Ethereum.

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1:) MakerDao is a 2nd layer project built on the Ethereum blockchain and was very early in providing a stackable defi stack. I also has a lot of developers developing mani Dapps.

Compound and Aave bring more flexibility and functions than MakerDao : Flash loans and better lending rates are also better than MakerDao and offer af token choices. larger inventory o

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MakerDAO has much higher LTV as Dai is a collaterally backed stablecoin. Aave and Compound allows users to access a wider range of tokens with better borrowing and lending rates.

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I believe that Aave and Compound have better lending and borrowing rates for loans and borrowing than MakerDAO.

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The LTVs of Aave and Compound are much lower than MakerDAO. This is because Aave and Compound return most of the borrowed rate back to the suppliers, meaning better lending rates. Aave and Compound also offer a wider range of tokens for borrowing compared to MakeDao.

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Each of them have a little different functionality, which encourages different borrowing. and collateral behaviour. Aave and Compound have better rates for borrowing and lending. MakerDAO has more primitive functionality.

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MakerDAO have a much higher LTV than Aave and Compound is because Aave and Compound have better leading rates and have better chances of returning rate to what was borrowed from suppliers.

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MakerDAO has much higher LTV as Dai is a collaterally backed stablecoin and a lot of dapps are built on top of MakerDAO and other protocols on top of them. So there are a lot of Funds equals High LTV.

  • Aave and Compound have better lending rates and you can borrow a wider range of tokens.
  • Aave also has Flashloan and Compound is known for its yield farming opportunities - none of which are relevant to MakerDAO.
  • MakerDAO is limited in its functions, however it’s an undisputed DEFI primitive on Ethereum.
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I’ve got a question. According to this article linked in the video, MakerDAO had a LTV of 92%.

However according to Josh’s video here: https://youtu.be/ty5Z9GmS_M0?t=530, you can only get a two thirds of your collateral as a loan which would be 66.6%. So how can MakerDAO have an LTV which is greater than 66.6%?

As we can observe on the link given, the Protocol MakerDao has the biggest LTV (Loan to Value). At the time of the writing we have a 98% LTV. If I understand correctly the definition given by the official Aave web page, in MakerDao you can borrow up to 98% of you collateral, but with great percentage comes a risk of liquidation.
Apart from this, We can see better interest rates in Aave and Compound

If I am incorrect, please correct me !!

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So the high TVL is due to the collateralization of the Dai Stable Coin @jak ?

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Sure. Well it needs to remain stable.
If several protocols require Dai, they’ll push buy pressure for the token which will increase the price of it.
This is not such a good thing for a stablecoin.

So in order to retain balance, there must be increased supply - and to allow this to happen people need to collateralize it.
As Dai is now so damn popular, there is a lot of value backing it.

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Look at the LTVs of Aave, Compound, and MakerDAO and talk about the differences. Why does MakerDAO have a much higher LTV than the other two?
Due to the collaterally backed stablecoin Dai giving the ability to provide higher lending %

What incentives are at play that encourages users to deposit more funds into Aave and Compound that are not at play in MakerDAO?
They have a better selection of tokens to choose interact with and have flashloans and yeild farming capabilities

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Cheers for that description :slight_smile:

Have they changed it since the video was made?
Its a fast paced environment so maybe they got more value locked in Dai that enables the increase in LTV % to be greater???

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Maybe it has changed. In that video I think Josh mentioned you can only get a loan worth two thirds of your Eth collateral. It’s possible that the rate is different for less volatile collateral like stablecoins.

think thats probably right, ETH volatility would mean that with a higher % it would mean liquidation would be more likely…which would be bad for business if lots of people ended up loosing money due to overstretching… I think, lol

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MakerDAO has the highest LTV clearly since it is behind DAI, the most used algorithmic stablecoin, as well as being one of the most established projects out there.

With that said, Aave and Compound offer more flexibility, functions, available tokens and better lending and borrowing rates thus making it more attractive to many. On top of that there is yield farming.

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MakerDAO has a much higher LTV ratio which would be considered much more risky, except that they are the de-facto entry point for using DeFi in most cases. This means that their DAO has much higher liquidity, especially given their 150% collatralization ratio. This is why as a DAO, they are more comfortable providing loans when compared to Aave or Compound.

Aave and Compound much smaller and their tokens are much less used than that of Maker (Dai), and subject to more exogenous variables that may affect their overall liquidity. For this reason, they cannot afford to be as lax with their LTV ratio as MakerDAO, although they do incentivize their users with higher yields.

An added incentive in both Aave and Compound is built into their respective tokens. For Compound, the token’s rate of return increases in proportion to the length of time a lender is willing to hold on to their deposit. For Aave, their tokens actively provide users with a fixed interest rate. These tokens, together with the stored value of the deposited crypto lead to a higher overall yield proposition for users.

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