Coming every Saturday, Hodler’s Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.
Top Stories This Week
Intensifying sell pressure saw Bitcoin briefly plummet below $29,000 for the first time since Jan. 5. The fall from $37,000, which happened within 48 hours, resulted in the biggest daily candle ever.
There have been some signs of institutional investors taking profit, as bulls attempt to cement $32,000 as a new support level. Analysts at QCP Capital are seeing signs of “institutional exhaustion,” and they warned the rally could be in danger if appetite for BTC slows down.
Of course, some institutions are indefatigable… with MicroStrategy “buying the dip” and snapping up 314 BTC at an average cost of $31,808 — a total spend of $10 million.
Bitcoin has lost 14% of its value over the past seven days. But over this period, many major altcoins haven’t been suffering sell-offs to the same extent. Ether is down just 2.6% on the week, Polkadot is actually up 1.5%, and XRP has fallen by 5.6%.
BTC/USD is in a corrective phase since the rally became overextended above $40,000. The question now is when this will end. If the $30,000 area doesn’t hold, a further drop to $24,000 becomes likely — resulting in a retrace of 40% since recent highs.
Just a month ago, Guggenheim’s Scott Minerd was anticipating that $400,000 was in sight for Bitcoin. How times have changed.
Speaking to CNBC, Guggenheim’s chief investment officer argued that BTC is now poised to drop to $20,000 — and Bitcoin is unlikely to climb any higher than $42,000 until 2022.
He said: “I think for the time being, we probably put in the top for Bitcoin for the next year or so.”
It’s been a long time coming. This week, ETH finally reached new all-time highs against the dollar — surpassing $1,428 on Bitstamp. Unfortunately, the major altcoin didn’t spend much time in uncharted territory — falling as low as $1,050 in the days that followed.
Are Ether bulls now in trouble? Well, the large drop after the ATH has been linked to how the Ether futures market was extremely overheated, with open interest on ETH hitting a record high of $1.8 billion.
At one point, Vitalik Buterin’s main wallet saw the ETH in his wallet amount to over $470 million. That’s a stark contrast to Jan. 2020, when his ETH fortune stood at just $58 million.
Strategists at Fundstrat Global Advisors believe that 2021 could be a year to remember for ETH. According to its researchers, the second-largest cryptocurrency could climb more than sevenfold to $10,500.
Joe Biden wasted little time in getting to work following his inauguration on Jan. 20. One of the first actions the new president took on his first day in office was to freeze the federal regulatory process — and this is good news for the crypto community.
The freeze means that the controversial regulations surrounding self-hosted crypto wallets, proposed by former Treasury Secretary Steven Mnuchin, are now on ice for 60 days.
Compound Finance’s general counsel Jake Chervinsky lauded the move, declaring: “We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.”
It’s fair to say that Yellen isn’t wild about Bitcoin, though. During her confirmation hearing with the Senate Finance Committee, she stated that cryptocurrencies are being used “mainly for illicit financing” — and that she wanted to “curtail” their use. She later clarified that she only wanted to clamp down on cryptocurrencies being used illegally.
The former chair of the Federal Reserve is now one step closer to earning the nomination after the Senate Finance Committee voted unanimously in her favor, paving the way for a full Senate vote.
As it readies itself to face a lawsuit from the U.S. Securities and Exchange Commission, filed under Donald Trump’s administration, Ripple is hoping that Biden’s time in office will bring favorable changes in regulations.
Executives at the embattled company have predicted that Biden’s team will most likely “bring a renewed focus on regulation and enforcement in the crypto space.” The post said that fintech and blockchain players have been left “in a state of limbo” by the lack of a clear framework — and warned countries like the U.K. and Japan are “miles ahead.”
Ripple’s general counsel Stu Alderoty wrote: “Intelligent, well thought-out regulations communicated effectively and uniformly applied can help level the playing field and unleash innovation and further mainstream adoption here in the U.S.”
When Gary Gensler’s appointment as SEC chair was announced, Ripple CEO Brad Garlinghouse tweeted: “Congrats to Gary Gensler! We’re ready to work with SEC leadership and the broader Biden administration to chart a path forward for blockchain and crypto innovation in the US.”
Uniswap is nearing an average of $1 billion a day in trading volumes during January.
It’s already surpassed the previous monthly trade volume record of $15.3 billion set in September during the DeFi boom.
Uniswap traders are spoiled for choice with 1,558 coins traded in more than 2,400 pairs, however, the majority tend to favor less risky trades.
On one day this week, ETH pairings with stablecoins USD Coin, Tether and Dai made up 45% of the $1.1 billion traded.
Uniswap strategy lead Matteo Leibowitz has already declared that $1 billion volume a day is the new normal.
Winners and Losers
At the end of the week, Bitcoin is at $32,300.43, Ether at $1,250.90 and XRP at $0.27. The total market cap is at $944,648,313,957.
Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Enjin Coin, Curve DAO Token and Decentraland. The top three altcoin losers of the week are IOST, Zcash and Dash.
For more info on crypto prices, make sure to read Cointelegraph’s market analysis.
Most Memorable Quotations
“I think for the time being, we probably put in the top for Bitcoin for the next year or so. And we’re likely to see a full retracement back toward the 20,000 level.”
Scott Minerd, Guggenheim CIO
“Only by widening the playing field and facilitating more participation will crypto reach and maintain a market cap of $2 trillion and beyond.”
“Ethereum will continue to see demand outstrip supply as global adoption continues.”
Danny Ryan, Ethereum Foundation researcher
“We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.”
Jake Chervinsky, Compound Finance general counsel
“We’ve obviously seen the price of Bitcoin rise quite a bit; we’ve seen a lot of activity in the DeFi space, and I think all of these things will provide a nice framework against which a new chairman can take a fresh look at questions across the board in the crypto space.”
“Crypto Mom” Hester Peirce, SEC commissioner
“I’m honestly loving how well $ETH is holding up in this climate.”
Neko, cryptocurrency trader
“There is an increasing amount of trader doubt that #Bitcoin will revisit $40,000. But according to address activity and trade volume, the long-term trend still looks plenty healthy. Keep a close eye on whether $BTC’s usage rate stays propped up.”
“Congrats to Gary Gensler! We’re ready to work with SEC leadership and the broader Biden administration to chart a path forward for blockchain and crypto innovation in the U.S.”
Brad Garlinghouse, Ripple CEO
“Bitcoin is the best cryptocurrency suited for store of value. In terms of what the Bitcoin blockchain can currently handle from a latency and throughput point of view, Bitcoin is very strong.”
Konstantin Richter, Blockdaemon founder and CEO
“Grayscale were buying $251 million of #Bitcoin on avg per week in Q4 2020. Last week they did $700 million in one day… And today $590 million… Pay attention.”
Danny Scott, CoinCorner CEO
“The flow into the Grayscale Bitcoin Trust would likely need to sustain its US$100 million per day pace over the coming days and weeks for such a breakout to occur.”
Prediction of the Week
New data from Pantera Capital this week suggested that Bitcoin’s current price action is closely following the stock-to-flow model’s trajectory.
The firm’s analysts believe BTC will have reached $115,212 by Aug. 1 and that its price will gain an average of more than $10,000 a month, hitting six figures in the early summer.
Pantera believes that a significant difference between this rally and 2017 is linked to the overall market composition and where value is located — with altcoins losing out.
Andy Yee, a public policy director for Visa in China, tweeted: “This rally is different. Massive shift from high-speculative, non-functioning tokens in 2017 to #Bitcoin and #Ethereum today.”
FUD of the Week
Barriers are still hindering institutional adoption of crypto, a new report commissioned by eToro suggests.
Researchers at Aite Group said the crypto market could reach a $2-trillion market cap if more institutional players were to get on board amid more favorable conditions. These firms would be more likely to adopt crypto if there was less regulatory uncertainty, a developed market infrastructure, and less risk surrounding security.
Tomer Niv, head of business development at eToro, said: “Only by widening the playing field and facilitating more participation will crypto reach and maintain a market cap of $2 trillion and beyond.”
The report also warned that “technical complexity” is an issue that needs to be addressed, with Niv adding: “More needs to be done from a market infrastructure point of view to make this group of investors feel comfortable joining the crypto ecosystem.”
More than 80% of crypto assets that hit all-time highs in January 2018 are still down by at least 90%, according to data from Messari.
The data set included 410 assets that posted record prices during 2017 or later, with 2018’s 157 star coins performing the worst with an average of -90.71% since the previous ATH.
2017’s top cryptos have since crashed by 82% on average, while 2019’s crop is down 72%, and 2020’s standouts have shed 53%.
CMT Digital analyst Matt Casto, who spotted the data, tweeted: “Holding assets that hit high marks +3 years ago is proving to be a massive lost opportunity cost for deploying capital.”
A manhunt is underway after robbers posing as crypto buyers stole $450,000 from a woman in Hong Kong.
One member of the gang completed multiple transactions with the victim to win their trust, and an investigation has uncovered there were three previous deals ranging between $77,000 and $90,000.
On the day of the robbery, the other members of the gang rushed to the scene as soon as their colleague received the Tether tokens in exchange for the $450,000 payment.
Armed with knives, they proceeded to lock the woman in the office where the deal took place but not before snatching her iPhone and the cash.
According to The South China Morning Post, the woman was able to use her second phone to inform her husband, who contacted the police. Detectives said that the woman’s uncle, who chaperoned her to the meeting place, reportedly saw four men fleeing the scene.
Luckily, the woman was unhurt in the attack, unlike other victims who have suffered physical injuries and even death at the hands of bandits looking to steal cryptocurrencies.
Best Cointelegraph Features
Even though Bitcoin has struggled to reclaim its recent high of $42,000, Shiraz Jagati says projections of BTC reaching $100,000 still seem achievable to some.
Banks in many countries continue to either outrightly deny or limit their services to crypto exchanges.
Could Bitcoin fulfill the key functions of a reserve currency? Andrew Singer talks to experts as he aims to find out whether BTC can find a new and unexpected role for itself.
Ethereum Price Forecast: ETH declines catch momentum eyeing $1,200
- Ethereum engages strong reverse gears as declines remain unstoppable.
- Investors brace for a rollercoaster as overhead pressure intensifies on account of a double-top pattern.
- Ether must regain the ground above $1,500 and association the 50 SMA to come out of the woods.
Ethereum’s recovery from the dip under $1,300 at the beginning of the week suffered rejected at $1,650 amid intense selling pressure. The bearish double-top pattern highlighted on Thursday is impacting the price, leading to ongoing losses. Several areas have been ignored, although at first, they seemed formidable enough to halt the losses.
For instance, the 50 Simple Moving Average (SMA) on the 4-hour chart, as highlighted at $1,520. In the meantime, Ether has extended the bearish leg beneath $1,500 and is exchanging hands at $1,480.
If support at $1,440 fails to hold, investors should get ready for a roller coaster swing to areas under $1,300 and eyeing a robust, lower, and robust, perhaps at $1,400. The Moving Average Convergence Divergence (MACD) adds weight to the bearish outlook as it draws close to crossing under the midline line.
Consequently, the MACD line (blue) recently crossed below the signal line, further cementing the bears’ influence over the price. The MACD is vital technical indicator traders use to identify entry and exit positions in the market. For now, the technical seems extremely bearish for Ether, thus the expected downswing to $1,200.
ETH/USD 4-hour chart
It is worth mentioning that a daily close above $1,500 will help prevent the losses targeting $1,200. However, Ether will be stuck in the woods and may need to recover the ground above the 50 SMA to secure formidable support.
On the upside, the impact of the double-top pattern is apparent. To bypass the overhead pressure, Ethereum bulls must chart a new path toward $2,000 by first taking down the hurdle at $1,650 and later $1,700.
Ethereum intraday levels
Spot rate: $1,480
Relative change: -60
Percentage change: -4
To keep track of DeFi updates in real time, check out our DeFi news feed Here.
The Blockchain Billionaires List (March 5, 2021)
Good morning. Welcome to Friday Focus, part of our new series: BitPinas Daily. We will look back at all the major news and updates that happened this week. Crypto is global, but sometimes news that matters happens while we sleep. So we bring to you what’s happening in our space here and abroad. We highlight three to four important news of the past week and list down the rest.
Market Price as of March 5, 2021:
Bitcoin closed March 4, 2021, at $48,727 per BTC. We’re down 0.9% in the last 7 days and up 62% since the year began. This is also 16.9% below the all-time high of $58,640, which was hit on Feb. 21, 2021.
Bitcoin’s market capitalization stands today at $883,520,048,592 which is 59.43% of the entire cryptocurrency market. The entire crypto market, by the way, now has a market cap of $1,487,357,382,010 (-7%).
On the table above, there’s the cryptocurrency SLP. If you wonder what that is, check out this article: Playing Axie Infinity vs Minimum Basic Salary in the Philippines.
Table of Contents.
Dallas Mavericks to Accept Dogecoin
The Dallas Mavs will soon start accepting Dogecoin as payment for Mavs tickets and merchandise because of “one very important, earth-shattering reason: Because we can!” Mark Cuban, the team owner shouted in a press release.
For people who want to learn about Dogecoin, this is Mark’s advice: “Talk to your teenagers who are on TikTok and ask them about it. They will be able to explain it all to you,” he said.
Dogecoin currently has a $6.3 billion market capitalization.
Here are the blockchain Billionaires:
|Name||Net Worth US$Bn||% change||Main Company||Country of Residence||Source of Wealth|
|6||Barry Silbert||3||New||Digital Currency||USA|
|11||Li Lin||2||82%||Huobi Technology||China|
|12||Tim Draper||1.9||New||Draper Associates||USA|
|14||Xu Mingxing||1.7||21%||OKG Technology||China|
|14||Michael Novogratz||1.7||New||Galaxy Investment Partners||USA|
|17||Dan Morehead||1.1||New||Panterra Capital||USA|
The list was made by China’s Hurun Research Institute. The Blockchain Billionaires List are people who have made their fortune mainly from cryptocurrency.
Hurun Research said Armstrong’s wealth is ahead of his company’s upcoming initial public offering. Sam Bankman-Fried is a new entrant in Hurun’s list, following the growth of FTX in 2020.
Satoshi Nakamoto was not included in the list because his identity is not known, Hurun said. Additionally, Vitalik Buterin was also considered in the list but the Institute said it is unable to estimate the Ethereum creator’s holdings.
Meerkat Finance drained by $31 million
An account of the events from The Block:
- One day after launching its yield farming pool on the Binance Smart Chain, Meerkat Finance said its smart contract vault was compromised.
- The project was drained by around 13 million BUSD and 73,000 BNB.
- The hacker supposedly drained the funds by altering Meerkat’s smart contract using the original deployer account.
- The Block said the data suggests either 1) Meerkat’s deployer private key was compromised or 2) this is self-directed by the project.
- Binance said it has noted of the abnormalities and now working with Certik, PeckShield, and Slowmist, all are auditing firms, to investigate.
- A channel is provided for affected users to report to.
Bitfinex Pay Lets Merchants Accept Payments in Crypto
In a press release sent to BitPinas, Bitfinex Pay is a payment technology that will allow online merchants with a means of receiving contactless and borderless digital token payments
The Bitfinex Pay widget can be integrated on to a website facilitating online payments. Users can pay with Ethereum (ETH), bitcoin (BTC), Lightning Network BTC (LN-BTC) and Tether tokens (USDt) via Ethereum or Tron. Payments made via Bitfinex Pay will be directly deposited into a merchant’s exchange wallet on Bitfinex.
“This is the age of digital money and with Bitfinex Pay we’ve created an intuitive and seamless way for online merchants to receive payments in crypto,” said Paolo Ardoino, CTO at Bitfinex. “Bitfinex Pay enables merchants to be easily equipped to support crypto payments as increasing numbers of consumers become more comfortable with paying for goods and services using digital tokens.”
NBA Top Shot
Rising Stars Announced
In another vote of confidence, withdrawal problems notwithstanding, NBA Top Shot is where the NBA unveiled its 2021 Rising Stars Rosters. Actually, the Rising Stars game won’t be played so this is just ceremonial and a formalization of sorts.
For some primer on Non-Fungible tokens, including NBA Top Shot, check out the BitPinas article: Non-Fungible Tokens – NFT 101 – Why People are Spending Millions of Dollars for Crypto Art and Digital Items
Yield Guild Games Raises Funding To Bring Gamers to the Metaverse
This success has attracted the attention of investors. YGG recently announced that it has raised $1.325 million from a seed round led by Delphi Digital. The funds will be used to invest in game assets and virtual lands and YGG, effectively acting as a decentralized autonomous organization (DAO), will lend these game assets in virtual worlds to its players so they can earn income.
Check out the BitPinas article: Yield Guild Games Raises Funding To Bring Gamers to the Metaverse
What else is happening
This article is published on BitPinas: The Blockchain Billionaires List (March 5, 2021)
Aave vs. Compound: Which DeFi Lending Platform is Better?
Aave and Compound are two of the most popular cryptocurrency lending protocols with competitive rates. As such, Aave and Compound are frequently compared.
Aave’s rise from its early days as ETHlend and its growing influence in the DeFi (Decentralized Finance) space makes for an impressive narrative. The upstart platform often battles and sometimes even bests the upper echelon of DeFi protocols such as Maker, Uniswap, and Curve Finance.
Compound launched in 2017 and saw a dramatic increase in popularity with investors in June 2020– its COMP governance token doubled in price in just 5 days of trading. The price was also impacted by the early support of major cryptocurrency exchanges like Coinbase, which made it available to the average US investor. Coinbase was also an early investor in Compound and offers around $40 in COMP for learning about the project on Coinbase Learn.
Aave and Compound compete against each other while competing for greater dominance of the DeFi space, using unique concepts and services to get an edge on the competition.
The following article will explore and compare Aave and Compound, their investment platforms, tokens, and various DeFi lending products they offer.
Aave vs. Compound TL;DR: Aave and Compound offer investors an opportunity to borrow funds against their idle crypto tokens as collateral, or lend their cryptocurrency for fairly competitive interest rates. Aave is a newer platform and offers a few unique features that Compound doesn’t and has grown very quickly in popularity in the last year.
How Does DeFi Lending and Borrowing Work?
Traditional banks that do long-term lending and borrowing typically use instruments like a mortgage, an auto loan, or a student loan. Short-term lenders in money markets use instruments such as CDs (certificates of deposits), Repos (repurchase-agreements), Treasury Bills, and a few others.
Lending and borrowing in the DeFi world are concretely different.
All borrowing, lending, and managerial functions are decentralized.
The process is permissionless.
This is in stark contrast to the centralized and permission structure of traditional banking and short-term lending industries.
In DeFi, lending and borrowing occur through protocols, such as Compound and Aave. These decentralized protocols don’t require the identification or financial history of either party.
Some of the lending transactions are done via Decentralized Exchanges (or DEXs), which facilitate these peer-to-peer transactions without the interference of a central bank or intermediary that retains the custody of cryptocurrencies.
In other words, there isn’t a third-party organization that holds and distributes capital to enable one party to lend to or borrow from another. These functions are fulfilled by smart contracts, which automatically execute the terms of an agreement once certain criteria are met.
Traditionally, these third-parties charge a fee or percentage for their services. Since DeFi is directly peer-to-peer, in theory, a greater amount of the total value being transacted is able to flow through rather than going to another party’s pockets.
The magic in the case of Aave and Compound occurs through Decentralized Apps (dApps.)
DeFi Apps are decentralized in both the app’s governance and custody of data, which is a revolutionary concept for the traditional finance industry. These features combined with a speculative boom of attention for DeFi tokens is a strong reason why many have formed a bullish case for the DeFi industry.
Both Aave and Compound are non-custodial, which means that the lender’s cryptocurrency remains in the owner’s wallet, and the platform doesn’t take electronic custody of it.
Having full custody of your digital assets was one of the primary motivations for the invention of cryptocurrencies over a decade ago, and DeFi advocates point to this feature as a necessity for decentralization.
For example, Satoshi Nakamoto, the Founder of Bitcoin, imagined the cryptocurrency to be a full-fledged financial system neither controlled by nor benefits any single entity.
What is Aave?
Aave (pronounced “ah-veh”) originated as a peer-to-peer lending platform called ETHlend, which was rebranded to become Aave in 2020.
ETHlend was a peer-to-peer marketplace, much like a job board, where lenders and borrowers could hash out the terms without any middle-men.
Founder Stani Kulechov rebranded the project to Aave in a swoop of updates to make it a more attractive option for investing for institutional and retail investors. In other words, the rebrand was a facelift to enter the DeFi space as a serious competitor.
Aave provides both variable and stable interest rates. In contrast, Compound only offers variable interest rates on borrowed funds.
Aave’s stable interest rate reflects an average of interest charged in the market for a given asset, which is visible on Aave’s platform for both borrowers and lenders.
Aave also allows users to switch from stable to variable rate at any point by simply paying the transaction cost of the ETH gas fee.
Aave’s variable interest is determined by an algorithm that tracks how the amount of funds borrowed from user pools. The greater the borrowing amount, the higher the demand and consequently, the higher the variable interest rate.
The Aave aToken
Aave has two tokens, the aToken and the “AAVE” token.
The aToken represents the value of funds lent or borrowed and allows investors to earn interest whereas the AAVE token is a governance token.
When a lender or a borrower with collateral lists its crypto assets with Aave, the user receives an equivalent amount of an aToken, Aave’s native token that acts as a 1:1 peg for another asset; for example, aBTC, aETH, and so on. aTokens allows the user to earn interest on either the funds lent, or it can be put up as collateral for a loan.
AAVE was formerly known as LEND, and was migrated in a 100 LEND to 1 AAVE ratio in October 2020. LEND was launched in 2017 during Aave’s ICO. The platform changed the name in its rebrand. The functionality remains relatively similar; AAVE is an ERC-20 token that acts as a governance token that grants holders a say in Aave’s future.
Interest on Aave is earned in real-time, updated every second, and added in the form of a fraction of an aToken. As this aToken is added to the user’s wallet, users can essentially simultaneously withdraw it from their funds.
The feature that made Aave famous is short-term loans known as Flash Loans. Flash loans made Aave a darling for speculative investors and consequently influenced the growth of its market share.
Like Aave, Compound is a decentralized lending platform. Compound was created in September 2018 by Compound Labs, Inc., a California based company.
Initially, Compound was a centralized lending platform but largely shifted to being a decentralized platform throughout 2019 and 2020. By July 17th, 2020, it became the largest community-driven decentralized lending platform and a decentralized autonomous organization (DAO) in DeFi following the introduction of its governance token COMP.
Unlike traditional lending, both Compound and Aave have created asset pools that lenders can contribute their cryptocurrency to, and from which users borrow.
This is particularly helpful when an investor needs to pay a debt in a currency it does not own. So, if an investor owns ETH and needs to make payment in DAI, they can do so instantly by using an Ethereum smart contract they have used to contribute to a Compound asset pool.
However, users seeking to borrow from either platform usually contribute more than the borrowed amount as collateral– usually up to a maximum of 75% of the crypto assets added to the pool can be borrowed.
The value (in USD) of the collateral must hold above the threshold set by the platform. The digital currencies put up as collateral are liquidated in the event that the value of crypto collateral dips below the established threshold.
The collateral is then made available and can be used borrowed by other users on the platform with the applicable fees at a variable interest rate.
Compound and Aave both keep the prices of the assets up to date by using an oracle (such as Chainlink) that supplies up to date price information of various crypto assets.
Since cryptocurrency assets can be incredibly volatile, both platforms require declaring a small percentage from each pool as reserves to hedge against volatility within the protocol.
Aave vs. Compound: Which is Better?
When it comes to the versatility of offerings and offering more for your money, we found Aave to be a better bargain.
Aave offers a larger number of assets.
For starters, Aave accepts far more variety of crypto assets to its borrowing pool than that by Compound.
Aave offers 23 different crypto assets from investors compared to 9 by Compound.
This attracts a larger variety and number of investors, which may make the platform more appealing to a greater number of people holding the variety of tokens.
Aave’s allows for higher borrowing amounts compared to collateral.
Aave offers more money to borrowers in return for their collateral.
Compound offers only up to 66.6% borrowing against 100% collateral.
Aave allows borrowing as much as 75% of their amount of collateral.
Aave offers Flash Loans
Aave’s short-term collateral-less loan service, called Flash Loan, is a reason may borrowers have explored the platform.
It is a recent phenomenon in Decentralized Finance (DeFi) that allows loans without collateral for a very short period of time and is only available on the Ethereum network.
How Does an Aave Flash Loan Work?
Much of arbitrage either in centralized markets of DeFi works on borrowed money. However, centralized markets provide such instruments as CDs (certificates of deposits), Repos (repurchase- agreements), and Treasury Bills to lend this money for short-term use for leveraging arbitrage opportunities.
One such arbitrage opportunity, for example, is where investors take advantage of the price difference on different cryptocurrency exchanges by quickly buying and selling the assets, profiting on the difference.
Most loans require collateral, so that if a loan isn’t paid back, the lender can liquidate, or sell, the collateral and get some or all of their money back.
Flash loans are unsecured, meaning they don’t require collateral. If a Flash loan isn’t paid back, the loaned amount is sent back by replacing the original transaction with a zero (0) transaction. Aave proponents argue that this arbitrage opportunity wasn’t possible before blockchain due to smart contracts and the intricacies of Ethereum’s network.
Flash loans use smart contracts that are programmed into the Ethereum network in such a way that it does not let the ownership of crypto assets change hands until certain conditions are met.
For the speculators, Flash loans have been a godsend. Flash loans were primarily created to help users exploit arbitrage opportunities: the loan is made and retrieved in the same contract and during the same transaction block where the loan originated. The entire operation of providing the loan and payback happens almost instantly. This gives the user a window of a few seconds to purchase and sell the same assets.
Flash Loans generate 0.3% in revenue for Aave for every transaction. Aave loaned out over $2B in Flash loans in 2020.
Aave vs. Compound Rates
Aave’s rates and Compound’s rates change frequently (as all DeFi platform rates do), but Aave tends to offer 2% higher on most assets. We recommend checking for yourself, as this information could change as soon as we finish writing this sentence.
Final Thoughts: Aave vs. Compound
DeFi lending and borrowing are at the forefront of innovation, and as such, they can be very volatile and risky.
Compound and Aave both provide well-developed solutions for lending out cryptocurrency and earning interest.
When it comes to comparing Aave and Compound, an argument can be made that Aave has surpassed Compound in terms of innovation and execution. Aave provides a greater variety of cryptocurrency assets, and offers unique products such as Flash Loans.
However, there is still plenty of room for Compound to grow. On December 17, 2020, Compound announced plans to create Compound Chain, a blockchain that can uniquely provide money market and financial services across multiple networks. Unlike most of the DeFi exchanges currently, which can only operate in the Ethereum Blockchain, a Compound Chain will be able to swiftly interlink to any blockchain as well as other networks.
This move could hypothetically allow Compound to link to Digital Currencies rumored to be issued by various Central Banks across the globe.
The Compound Chain Whitepaper states:
“Compound Chain is a reimagination of the Compound Protocol as a stand-alone distributed ledger, capable of solving these limitations and proactively preparing for the rapid adoption & growth of digital assets on a variety of new blockchains, including Eth2 and central bank digital currency ledgers.”
However, Aave and Compound aren’t alone in the DeFi race and are faced with strong competition According to DeFibase, despite the popularity of Aave and Compound, Maker Dao is the market leader in cryptocurrency lending DeFi Exchanges.
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Thai SEC Backpedals on Crypto Trading Requirements
Marc Lasry and former CFTC chair Giancarlo invest in BlockTower Capital
Cardano Multi-Asset ‘Mary’ Update Launches to Mainnet
Billionaire Mark Cuban Explains to Peter Schiff Why Gold ‘Will Die’ As a Store of Value
Full Cardano decentralization expected in March
Bitcoin price could rally up to $50,000
TA: Ethereum Lacks Momentum Above $1,550, Why Dips Likely To Be Limited
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Bitcoin Bouncing From Bull Market Support Points To 2021 As The Year Of Crypto
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