Why choose Maker over Compound/Aave?

I’m not sure the appropriate section of the forum to post this but I’m working on my investment thesis and I’m trying to get a better understanding.

Collateral factors:

Aave: 80%
Compound: 75%
Maker: 66.67%

Interest rates:

Compound: 0%
Maker: 2%
Aave: ~5%

If I’m going to draw debt on my ETH, why would I choose Maker over Compound or Aave? Maker has the lowest liquidation threshold and does not have the lowest interest rate. I understand interest rates will normalize on Compound with time, but let’s say we remove interest rate from the discussion. The collateralization factor is very important. No rational actor would draw debt close to their liquidation point to begin with, but the larger the buffer the better. Maker is non-competitive in that sense.

I understand stability of the protocol is important, but trust is growing on Compound and Aave and I believe they are safe enough. Even in a March 12 situation I imagine they’d be okay (but maybe not).

Maker being the trusted protocol for RWA would be a great reason to be conservative. But how is Maker going to compete in the cryptoasset realm? Where is the competitive advantage going to come from in the future? I don’t even fully understand why TVL is growing so rapidly to begin with. Clearly the yields for DAI are going to be on par with other stablecoins in the future, so that isn’t something to rely on.

Just trying to gain a better understanding of DAI growth and the vision for the future.

Thanks.

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On Compound and Aave you can borrow Dai, whereas on Maker you can mint it.

If you want a large amount of Dai, borrowing it from Compound or Aave will push up the interest rate.

At Maker you can mint as much as the debt ceiling for your collateral will permit at the prevailing stability fee.

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“On Compound and Aave you can borrow Dai, whereas on Maker you can mint it.” - What’s the advantage of this?

DAI versus USDT/USDC is irrelevant for most users. They just want the best rates.

Even if they did want DAI, the DAI supply is ~1.5B on Compound and a multi-million DAI draw shouldn’t impact the interest rate much. Why would you mint DAI for 2% when you can draw DAI for 0% on Compound. Even if Compound rate was 2% as well, the collateral factor is higher on Compound which should bring users there.

Dai on Compound is being deposited as collateral against which Dai is borrowed, and the cycle repeated to gain COMP rewards. So the same Dai is being counted multiple times. The entire amount of Dai in existence right now is around 938 million.

Aave has about 39 million Dai supplied, 25 million available.
The interest rate would be much higher if you borrowed 20 million Dai there.
You could mint 50 million Dai right now from Maker and still pay 2%.

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While this is true, how many out there can borrow/mint 20M? It is just not for the majority. I believe the majority is in the range of thousands-tens of thousands. With this, the rate isn’t going to make a difference, and I do see that Maker is not being competitive enough when coming to this point. OP is also right about collateral factors, in other platforms the liquidation price is lower, it offers more safety buffer there.

I really like Maker, but when coming to the above point I do see Maker losing out.

The good thing about Maker is it is still the most secure (in my opinion) and decentralised. But with time, other platforms are going to be more battle-tested and getting more robust. Can Maker stands out then?

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I think because of the perception that Maker is safer/more trusted. If you don’t believe it, borrow from Compound.

The decision to collect 2% SF on ETH despite DAI being over the peg is not helping. They say that 2% SF does not deter people from borrowing ETH. I say it does and the only proof would be to change the SF to 0% now and see the result. What they did is increase the SF and observe that nothing changed much. That is not a valid proof.

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I think our interest rates are more stable relative to them, and will not cause interest rates to soar when large amounts of DAI are loaned out, which they cannot do.

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if we had 75-80% collateral factors during black thursday, how much worse would the losses have been? it might be worth trying to be nimble with the collateral factors in order to encourage dai supply growth/user loyalty

You can’t draw dai from Compound for 0%- the current borrow rate is 3.93% - much higher than minting it on Maker- even if you subtract the small income you would get from depositing your ETH (currently 0.13%).

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Compound Dai borrow rate is 3.93% not 0%. Much cheaper to mint new Dai on maker than to borrow it on Compound or Aave right now.

Another advantage that i was not sure was discussed is that you do not have a counter party, and hence you could always withdraw your collateral after repaying your debt.
As oppose to normal platforms, where your collateral is borrowed to other people, and in theory there might not be enough available collateral to withdraw.

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The borrow rate for DAI on Compound is ~4% but the COMP distribution is ~3%, making it net 1%, which is lower than Maker. But rates are seeming to normalize, making Maker more competitive. But there is still the topic of the collateral factor. The lower collateral factor could be looked at as a positive for safety, but it is a huge negative from a utility perspective. As these non-Maker protocols gain more and more trust over time, people should choose the protocol with the highest buffer for liquidation.

If the collateral factor is going to remain non-competitive for safety purposes, then the Maker community should really focus on RWA which has a great fit (due to safety) and provides a competitive advantage over the other lending/borrowing protocols.

But ETH-B has a 77% collateral factor which puts it in the competitive range. Are there plans to expand the debt ceiling for ETH-B and/or add other assets with higher collateral factors? I think this is a really smart direction from an attractiveness standpoint, but obviously need to be careful with the potential for insolvency.

One benefit of borrowing from Maker is the oracle security module delay. All price updates are delayed by 1 hour before they can trigger liquidations, giving vaults a guaranteed margin call and chance to fix their collateral ratio (potentially with automation). With Compound or Aave, your position can be liquidated immediately when a price update is pushed.

On the flip side, this is also a major reason why Maker keeps collateral ratios lower than other lenders - there’s a risk of prices falling further in the hour before liquidations can be triggered.

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That’s true but overall seems more like an inefficiency than a benefit. Yes it can benefit users in rare and extreme situations, but overall it puts users at more risk that the protocol can become insolvent. Wouldn’t use that talking point as a competitive advantage.

If you’re a vault owner borrowing DAI, you’re not really concerned with protocol solvency and additional 1 hr notice to meet margin calls is 100% positive. Additionally, if there was an issue with the oracle feeding an incorrect (too low) price, Maker would have a chance of fixing or shutting down the system, while Aave/Compound would experience disorderly liquidations.

ETH-B interest rate will be lowered from 6% to 4% and debt ceiling lowered from 20 million to 10 million tomorrow per this passed executive vote: https://vote.makerdao.com/executive/onboard-yfi-and-bal-debt-ceiling-and-stability-fee-adjustments?network=mainnet#proposal-detail

Debt ceiling is being lowered because the existing limit is mostly unused, but we’ll be able to raise it back up if demand increases.

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Thanks for the info. Really helpful.

Clearly the community thought increasing the collateral factor was important to remain competitive, hence ETH-B. If it can gain traction and issue significant debt, it will tick all of my boxes as an investable product.

Those boxes are:

Competitive with collateral factor versus other industry leaders.
Competitive interest rates versus other industry leaders.
Competitive collateral options versus other industry leaders.
DAI peg stability.
Leading in process of onboarding RWA.

All looking good. Thanks all and if anyone has anything to add, please feel free.

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I think that the 1hr delay is great and that it should depend on the asset and perhaps on other parameters also. For example, the ETH delay could be 4 hours while the YFI delay could stay at 1 hr. We should not be afraid to be temporarily undercollateralized in collaterals like ETH and maybe even USDC - at least when the DAI price>$1.

I am much more willing to borrow knowing that I might be able to add to my collateral/repay my debt before the next black swan event wipes out my whole collateral.

I think ETH-B is a wasted effort. We are going in the wrong direction there by catering to whales (which are still not interested) instead on concentrating on regular users who want a safe loan and a stable DAI.

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Maker is the most advanced protocol in its capacity to provide default protections.

There are other platforms which attempt this as well - DyDx has an insurance fund, Compound has Opyn, Aave is introducing staking.

But Maker has taken the lead by making all MKR holders be in all cases guaranteeing the solvency of the system. In times of substantial DSR this will attract many participants.

There is research from the legacy world on how CDS issuers reduce cost of capital for borrowers.

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We are lowering the stability fee down from 6% to 4%. The product is also very new. Give it a chance. It seems like a very narrow view to be opposed to an offering because it hasn’t gained traction right away. An additional offering for the most widely used collateral in the Ethereum ecosystem that is on par with industry standards sounds like not only a good move but a mandatory one. A higher collateral factor caters to all users.

Also you can’t target regular users while having the worst UX in the lending/borrowing space. Aave and Compound have a significantly superior UX than Maker. Firstly, going to makerdao.com and having to navigate to Products > Oasis > Borrow DAI is unnecessary friction. There should be an additional frontend that deals directly with the borrowing app. It should be on a different domain name so we can have both options. Then you have a list of collateral types. None of them just say the collateral type. They all have “-A” or “-B” next to them. That’s not good from a UX perspective. There are no images of the coin logos. The “LIQ RATIO” is not the industry standard way of displaying the liquidation threshold. Most protocols use “collateral factor” instead. If you want to target “regular users” then you should have a UX that caters to regular users. I think this is an important upgrade that needs to be made. What forum category can I post this suggestion in? Are there any existing proposals/posts that discuss frontend design?

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