DeFi lending platforms enable crypto holders to earn yield, while offering those in need of quick liquidity the ability to borrow without selling their holdings.
In this guide, we cover what these platforms are and how they work, before comparing seven market-leading DeFi lending apps on the market. We also share some tips on how to choose the best platform for your needs.
TL;DR
- DeFi lending platforms are blockchain-based applications that let you borrow and lend crypto without interacting with intermediaries or centralized authorities.
- Top platforms include Liquidium, Aave, Compound, Morpho and Yearn Finance.
What Are DeFi Lending Platforms (& How Do They Work?)
DeFi lending platforms are blockchain-based protocols that enable you to borrow and lend cryptocurrencies without relying on intermediaries or centralized authorities.
Most DeFi lending platforms rely on liquidity pools. These are smart contracts where users, called liquidity providers, deposit funds. In return, they earn interest paid by borrowers.
Borrowers deposit collateral to borrow from these pools. If they can’t pay back their loan, or the price of the borrowed asset or collateral changes too much, the collateral is liquidated and used to repay the lenders.
That’s how DeFi lending works in a nutshell.
Best DeFi Lending Platforms at a Glance
Now, let’s take a look at the market-leading DeFi lending apps you should know about.
Liquidium
Liquidium is a cross-chain lending platform that allows users to leverage assets from any Layer 1 blockchain as collateral to secure loans on other chains. This cross-chain design gives it unique and broad flexibility, with applications shaped by the needs of their users.
Key Features
Some of Liquidium’s key features include:
- Security: Liquidium is fully non-custodial, giving users control over their assets. The platform also undergoes regular security audits helping ensure a safe and reliable lending environment.
- Governance: It uses a decentralized governance structure with the Bitcoin Runes-based LIQUIDIUM•TOKEN used for voting.
- User experience: Liquidium offers a clean and simple interface from which users can quickly and easily choose the options that work best for them. It requires little to no technical knowledge to use.
- Fees: Liquidium offers customizable network/priority fees, giving users the flexibility to choose a balance between cost and processing speed. Higher fees speed up loan execution, while lower fees provide a more economical option with slightly longer processing times.
Lending Models
Liquidium uses a pooled lending model, where deposits from multiple users are combined into shared pools for each asset type. This structure increases liquidity and ensures funds are readily available for borrowers, who can secure loans from these pools using cross-collateral.
Collateral Requirements
Liquidium requires all loans to be overcollateralized. For example, borrowing $50,000 in USDT might require posting $100,000 worth of BTC as collateral.
If a user’s loan-to-value (LTV) ratio approaches dangerous levels because of price volatility or interest accumulation, the platform initiates liquidation in order to protect lenders.
Supported Blockchains
Liquidium is compatible with Bitcoin, Ethereum, Solana, and other native Layer-1 assets.
Aave
Aave is an open-source lending protocol that allows the creation of non-custodial lending markets using an overcollateralization model and variable interest rates. It originated on Ethereum and now supports a number of other blockchains and L2s.
Key Features
Some of Aave’s most important features include:
- Security: Aave is non-custodial. Its Umbrella system automates slashing/staking to protect from risks linked to bad debt.
- Governance: The AAVE token is used to vote and decide on the outcome of Aave Improvement Proposals (AIPs).
- User experience: Aave is generally considered accessible, with a straightforward user interface. It also allows direct interaction with its smart contracts on-chain, though this can be more technical for less experienced users.
- Fees: The protocol’s fees are relatively modest, though flash loans (which are uncollateralized and must be repaid within a single block) carry an additional charge.
Lending Models
Like most DeFi lending platforms, Aave uses liquidity pools where lenders deposit assets, and borrowers draw from them. Interest rates are determined dynamically and influenced by both the protocol’s mechanism and governance decisions, meaning they can change over time.
Collateral Requirements
Aave requires overcollateralization for all loans. However, users can designate any token they’ve already supplied to the liquidity pools as their collateral. The exact LTV ratio depends on the chosen pair.
Supported Blockchains
Aave supports more than a dozen blockchains, including some L2 solutions on Ethereum such as Arbitrum and Optimism.
Compound
Compound is a DeFi lending protocol that operates much like the others in this space. Lenders deposit funds and earn interest, while borrowers put up collateral in order to borrow from these pools.
Key Features
Compound benefits from the following key features:
- Security: Compound is self-custodial, permissionless, and has a bug bounty program open to anyone who notices a vulnerability.
- Governance: COMP token owners can propose governance actions depending on the amount they hold.
- User experience: Compound is focused on simplicity and provides a straightforward but relatively limited lending experience.
- Fees: The platform doesn’t charge upfront fees, but you’ll still need to pay network fees on every transaction.
Lending Models
Compound is another lending platform built on liquidity pools. When users supply assets, they receive cTokens (for example, cUSDT) that represent their deposit. These tokens accrue interest over time and can be used within the wider DeFi ecosystem.
Collateral Requirements
Like the majority of other DeFi lending platforms, borrowing on Compound requires overcollateralization to minimize risks for both borrowers and lenders.
Supported Blockchains
Compound operates primarily on Ethereum, although the newer version, Compound III / Comet, is an EVM-compatible protocol.
Morpho
Morpho is a lending layer built on the Ethereum Virtual Machine (EVM) that allows users to lend and borrow assets. While its design makes it relatively straightforward to deploy on other EVM-compatible networks and to create permissionless markets, the focus is fairly narrow compared to broader multi-chain platforms.
Key Features
Some of the key features of the Morpho lending platform include:
- Security: Morpho is a non-custodial platform that has had several security audits.
- Governance: It uses the MORPHO token for governance, letting holders vote on protocol decisions.
- User experience: There are several web interfaces available. While they’re designed to be beginner-friendly, the experience can feel slightly fragmented compared to platforms with a single, unified interface.
- Fees: Morpho fees vary depending on the vault or market. Performance fees can typically range between 0 and 20%, with management fees up to 5% annually.
Lending Models
Morpho uses Vaults, which are single-asset pools where users deposit that asset and accrue interest in return. To create a market, one collateral vault is connected to one loan vault, but the vaults themselves exist in isolation to minimize risks.
Collateral Requirements
Morpho relies on overcollateralized crypto loans. This helps mitigate the risks for lenders, particularly those which are associated with price movements, interest accumulation and similar factors.
Supported Blockchains
Morpho supports blockchains based on the Ethereum Virtual Machine (EVM).
Yearn Finance
Yearn Finance is mainly a DeFi yield aggregator that helps users find potentially high returns on their crypto. It connects all these different yield opportunities into a single interface.
Key Features
- Security: Yearn Finance is self-custodial, with regular audits and an active bug bounty program.
- Governance: YFI token holders can contribute to the Yearn Improvement Proposal (YIP) process, where one token corresponds to one vote.
- User experience: Yearn Finance focuses on simplifying DeFi by offering a straightforward interface that collates various yield opportunities in one place.
- Fees: Most Yearn Vaults generally have no management fee and a ~10% performance fee, with no deposit and withdrawal fees.
Lending Models
Yearn Finance uses Vaults, which are pooled strategies that allocate funds across different DeFi platforms. When users deposit assets they receive yTokens, which are Liquidity Provider tokens corresponding to the pool.
Collateral Requirements
Yearn Finance relies on overcollateralization simply as this is a standard requirement of the underlying pools and strategies it connects to.
Supported Blockchains
Yearn Finance operates primarily on Ethereum, but is also active on several other EVM-based blockchains.
How to Choose the Right Platform For You
Considering the number of available options, choosing the right platform might feel daunting. Some factors that can help you make an informed choice include:
- User-friendly: First and foremost, the platform you would like to use has to be user-friendly. If it’s too complicated, you’re bound to make mistakes and lose money.
- High yields: While a protocol’s percentage APY will depend on many different factors, platforms that offer high lending yields and low interest on borrowing is what you’re ideally looking for.
- Security: The platform you choose should have a strong security track record with regular audits and bug bounties.
- Supported chains: The majority of lending platforms support EVM-based chains, but for those who want to borrow BTC, there are fewer options.
Get Started With DeFi Lending Today on Liquidium
If you’re interested in cross-chain DeFi lending without strict limits on which assets you can use, Liquidium is your go-to protocol.
With an intuitive platform and a new approach to DeFi lending, Liquidium expands the possibilities of decentralized finance.
Join the waitlist today and try your hand at the Liquidium demo.
Disclaimer: This article does not constitute financial advice, and we strongly recommend conducting your own research and consulting with a professional financial advisor before making any investment decisions. We are not liable for any potential losses incurred from applying the strategies discussed. Proceed with caution and at your own risk.