Creditum’s DeFi protocols explained
When it launches, Creditum will use the AAVE and COMPOUND protocols for lending.
DeFi allows any individual to take out or supply a loan without approval from a third party. The large majority of lending products use popular cryptocurrencies such as ETH to secure loans through over-collateralization. Thanks to smart contracts, maintenance margins and interest rates can be programmed directly into a borrowing agreement, with liquidations happening automatically should an account balance fall below a specified collateral ratio.
AAVE is a lending protocol that enables users to lend and borrow a diverse range of cryptocurrencies using both stable and variable interest rates.
Aave includes notable distinguishing features such as uncollateralized loans, “rate switching”, Flash Loan and unique collateral types.
Aave leverages its native token — AAVE — that provides holders with governance. AAVE can also be staked for insurance to earn protocol fees and AAVE rewards.
Aave has seen significant growth in 2020, most of which can be attributed to its diverse collateral support and its forthcoming Aave V2 upgrade — featuring gas optimizations, credit delegation and liquidity mining.
Aave offers the most diverse range of DeFi collateral of any lending protocol on the market. Furthermore, it is backed by strong liquidity and the opportunity to protect against smart contract risk using Nexus Mutual.
Compound Finance is the sector leader in protocols enabling users to lend and borrow popular cryptocurrencies like Ether, Dai and Tether. It leverages audited smart contracts responsible for the storage, management, and facilitation of all pooled capital.
Compound recently introduced a governance token COMP, which allows token holders to vote on important protocol decisions, such as new collateral types, borrowing power, and interest rate models. COMP holds no economic benefits and is solely used to vote on protocol proposals.
Since being listed on Coinbase, COMP governance has kept a steady flow, best highlighted by a liquid governance process where anyone can make a proposal, but it only gets put to voting if 1 million COMP is delegated towards it. What’s unique about COMP’s governance model is that tokenholders can delegate their tokens to an address of their choice. Only those who hold more than 1% of the supply can make new proposals.
While DeFi may seem overwhelming complex to the average individual, Compound prides itself on building a product that is digestible for users of all backgrounds.
“Compound is a protocol on the Ethereum blockchain that establishes money markets, which are pools of assets with algorithmically derived interest rates, based on the supply and demand for the asset. Suppliers (and borrowers) of an asset interact directly with the protocol, earning (and paying) a floating interest rate, without having to negotiate terms such as maturity, interest rate, or collateral with a peer or counterparty.”
We look forward to you joining Creditum and experiencing these DeFi protocols for yourself. You can SIGN UP for the Creditum app at https://creditum.io/ — we look forward to seeing you there.