Compound is a protocol that allows users to earn interest on their cryptocurrency deposits (i.e. by lending their cryptocurrency to other users who want to borrow it) and also borrow cryptocurrency from the platform. It is built on the Ethereum blockchain and is primarily focused on providing liquidity for cryptocurrency markets.
MakerDAO, on the other hand, is a decentralized organization that operates on the Ethereum blockchain and is focused on providing stablecoins (i.e. cryptocurrencies that are pegged to the value of a traditional asset, such as the US dollar). MakerDAO’s flagship product is the Dai stablecoin, which is backed by Ethereum and other collateral.
Users can generate Dai by depositing collateral (e.g. Ethereum) into a smart contract called a “Collateralized Debt Position” (CDP) and borrowing against it. The amount of Dai that can be generated is limited by the value of the collateral and the “debt ceiling” of the CDP.
One reason why MakerDAO has a higher Loan-to-Value (LTV) ratio than Compound or Aave is because it uses a collateral-based model for lending, rather than a credit-based model. This means that the amount of Dai that can be borrowed is directly tied to the value of the collateral that is deposited into the CDP. The LTV ratio is the ratio of the value of the loan to the value of the collateral. Because the value of the collateral determines the amount of the loan in the MakerDAO system, the LTV ratio can be higher than in other lending platforms that use a credit-based model.
In terms of incentives, both Compound and Aave offer users the opportunity to earn interest on their deposits by providing liquidity to the platform. This can be a strong incentive for users to deposit more funds into these platforms. In addition, both platforms offer yield farming opportunities, which allow users to earn additional rewards by providing liquidity to certain pools or by staking their tokens.
MakerDAO, on the other hand, does not offer the same type of interest-earning opportunities for depositors. Instead, it relies on the stability and demand for the Dai stablecoin as an incentive for users to participate in the system. Users may be attracted to the stability of the Dai stablecoin and the potential for appreciation in its value as more people use it. In addition, the MakerDAO system includes a series of governance and stability mechanisms, such as the MakerDAO Stability Fee and the MakerDAO Governance Risk Team, which work to ensure the stability and sustainability of the system.