So UNI tokens, on the basis of which SUSHI was created, will not allow you to receive passive income from transaction fees of the network, unlike the latter. The same applies to the COMP tokens from which the productive AAVE originated, allowing you to get the right to income from the cash flow in the
For example, Aave users can deposit their tokens for staking to secure the system with collateral and receive a reward for this in addition to the commissions they earn for securing transactions.
In the Sushiswap system, SUSHI holders also earn passive income from staking the system tokens, making it work for more than 16% of all transaction fees on the blockchain.
In addition to making money on transactions, the developers of many productive tokens offer holders of locked tokens to earn even on inflationary fluctuations. However, despite all the charms of production tokens, they are far from always the only right investment decision. Learn more about these tokens versus unproductive DeFi assets.
Uniswap and Sushiswap
Both platforms are decentralized automated market makers (AMM) on the Ethereum blockchain. SushiSwap is positioning itself as a next-generation project. It is a fork of Uniswap with some key differences, the main one being its native SUSHI token, which gives holders the right to manage and claim a portion of the protocol fees. This means that the SUSHI holders own a stake in the protocol.
Building on the design of Uniswap, the SushiSwap developers have added community-specific functionality. This helped to improve the design of the protocol and provide additional benefits to shareholders. SushiSwap is also gaining points by encouraging liquidity providers.
On Uniswap, liquidity providers only receive pool trading fees when they actively provide that liquidity. Once they withdraw their share from the pool, they no longer receive this passive income. Moreover, if the protocol starts to gain traction, even if they were liquidity providers early on, they risk losing some of their profits. This is because larger and wealthier shareholders such as venture capital funds, exchanges, mining pools join the protocol with massive amounts of capital.
On SushiSwap, any conditionally taken person can contribute some liquidity to the pool and receive a reward in the form of SUSHI tokens. However, unlike Uniswap, these tokens also entitle you to continue to receive a portion of the protocol fees that accumulate in SUSHI even if you decide to end your participation in liquidity provision. Thus, as an early adopter who promotes the provider's liquidity, you become a shareholder in the protocol.
Uniswap pays a 0.3 percent commission to liquidity providers vs 0.25 percent for SushiSwap, but SushiSwap pays SUSHI holders an extra 0.05 percent in addition to the commission. Thus, the latter encourages SUSHI possession, while the former encourages LP. At the same time, while SUSHI showed an increase of 189% in dollar terms, the UNI token surprised us with a two-fold advantage over it, showing 378% growth over the same period.
Compound and Aave
Among all the decentralized applications in DeFi - AAVE and Compound have one of the highest growth rates in lending and are the most frequent participant in raising assets in the market. Compound and Aave keep tokens prices up to date with an oracle, like Chainlink, that provides up-to-date information on crypto-asset value.
Since crypto-assets can be volatile, both platforms require a small percentage of each pool to be declared as reserves to guard against volatility. The interest paid by the borrowers is that earned by the lenders, so the APY on the loan is always higher. This is also where one of the biggest differences between Compound and Aave comes into play.
While both protocols offer a variable interest rate, Aave also offers a fixed rate APY. A stable APY is fixed in the short term but may change in the long term to accommodate changes in the supply/ demand ratio between tokens. In addition to stable APY, Aave also offers flash loans, whereby users can borrow
funds without upfront collateral for a very short period.
Aave has aToken and AAVE tokens. aToken represents the value of funds lent or borrowed and allows investors to gain interest. The AAVE token is a governance token. Flash loans are a feature of Aave that made the project one of the main platforms for speculators and, as a result, influenced the growth of its market share. AAVE's growth began in mid-April, exactly after the project launched on the Polygon network to scale the protocol while remaining the entire resource on the Ethereum network.
The rocketing rise in TVL, which began in late April, coincided with a 55% rise in the AAVE price from a low to $ 534. The migration of AAVE to the Polygon network and the increased scalability it offers continue to attract new users and push the token price to new highs.
However, landing platforms have the problem of a shortage of liquidators. For example, Compound has just over 600 of them, which is very few. The fact is that this number of liquidators accounts for about $ 1 billion in liquidity, while Compound has a liquidation premium of 8%.
Comparing the two projects, Aave is better in that it accepts much more diverse crypto-assets in its leveraged pool than Compound. Also, Aave offers 21 assets, not 15 like Compound. In turn, this makes the platform more attractive to investors.
Aave allows for higher borrowing amounts than collateral by offering to borrow up to 75% of the collateral amount. In turn, Compound offers to take up to 66.6% against 100% collateral.
In a closer comparison, Compound has its advantages over Aave. For example, Compound remains the most optimized of the two platforms. While you lose some functionality, you also avoid the need for training, which is off-putting to some users. Plus, Compound wins the race when it comes to encouraging both lender and borrower participation. Users of both types receive incremental fractions of COMP tokens every few seconds. Compound is a mature product and still has a lot of room to grow.
As far as Aave is concerned, the protocol is still relatively new and is still getting better at establishing governance by the community. At the same time, Aave has many different development paths. As a result, the unproductive COMP token showed 123% growth over the year, while the productive AAVE based on it more than doubled it, showing 255%.
Well, final thoughts
The rise of liquidity mining as a method for the fair distribution of tokens has led to the launch of many new DeFi tokens. They all aim to create a level playing field for all participants without any preconditions, with little or no funding from the founders and with an equal distribution based on the funds available. Tokens distributed through these liquidity channels subsequently give their owners control rights.
As you can see from the comparison, it is far from clear which tokens are better — productive or non-productive. When choosing a tool for investing, you need to specifically consider each option.
In our example, the unproductive UNI still defeated SUSHI, because it showed more than 2x more growth than the latter, which means that the UNI token was more interesting for investment. At the same time, the productive Aave has more than doubled its growth dynamics over its unproductive precursor Compound.
This tells us that the main thing here is the fundamental indicators of the product on the market. If there is a base and market growth, then there are prerequisites for a good return on investment.
While the UNI token can be called a paper clip in a sense, as there is a lack of the right to cash flow, the Uniswap system continues to be a major player among decentralized exchanges. So far, none of the other DEX projects have come close to the volume of generated commissions. According to this
indicator, about 60% of the entire sector belongs to Uniswap, and in addition, the project shows an increase of hundreds of percent.
Productive Aave, in turn, is also the leader in its pairing with Compound, ahead of the latter in terms of the amount of borrowed funds, annual income and production of liquidity.
That is, it can be concluded that the productivity characteristic is not the main one. The main thing from the point of view of ROI and its volume is what the product the project gives to the market. If it meets market needs and conditions, then it will give a good outlet to its investors - token holders. In this
respect, the DeFi market is practically no different from the usual financial markets.