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Active loans are a fundamental metric for assessing leading crypto investments. This guide will break down how they function and highlight some of the top projects with significant active loan balances, including Aave, Spark Protocol, Morpho, Compound, and Venus.
On lending platforms such as Aave and Compound, an “active loan” is defined as an outstanding loan awaiting full repayment. Typically, borrowers secure these loans by offering other cryptocurrencies as collateral.
Consider the analogy of a margin account in stock trading. In a margin account, investors can borrow funds from a broker to purchase more stocks than they could with just their own funds. To do so, they must provide collateral, such as cash or stocks.
The broker lends the funds, which the borrower repays with interest over time. If the value of the stocks drops significantly, the broker may require the borrower to add more collateral or liquidate assets to repay the loan, thereby managing their risk.
Top Three Crypto Investments by Active Loans
AAVE
Aave currently holds an active loan balance of $7.50 billion, more than doubling since the start of the year. This growth is largely driven by Aave’s leading position in the decentralized finance (DeFi) sector, which has gained significant mainstream attention. As DeFi adoption increases, so does the demand for borrowing assets through platforms like Aave.
Aave has also expanded the variety of supported cryptocurrencies and stablecoins available for lending and borrowing, making the platform more appealing to both borrowers and lenders. This asset diversification has contributed to the rise in Aave’s active loan balance.
Spark Protocol
Spark Protocol’s active loan balance currently stands at $1.44 billion, consistently maintaining above the $1 billion level over the past year. Closely connected with Sky (formerly MakerDAO), Spark Protocol focuses on lending USDS (previously known as DAI).
In 2024, demand for USDS has grown due to its stability as a decentralized stablecoin in an unpredictable market. This demand has driven up Spark Protocol’s loan balance. Sky has also seen an increase in USDS minting through platforms like Spark, which offers competitive borrowing options and low interest rates. With more USDS in circulation, borrower activity through Spark has risen, boosting its active loan balance.
Morpho
Morpho’s active loan balance stands at approximately $766.31 million. The project sustains this high balance through a unique hybrid lending model that optimizes rates by merging both pool-based and peer-to-peer lending.
When a borrower can be directly matched with a lender, Morpho facilitates peer-to-peer lending, offering competitive interest rates.
If no direct match is available, loans are directed to pool-based protocols, ensuring ample liquidity. This dual approach attracts borrowers and lenders seeking enhanced returns compared to traditional pool-based lending platforms.
Additionally, Morpho integrates seamlessly with major DeFi platforms such as Compound and Aave, allowing users to access these platforms’ liquidity while benefiting from Morpho’s rate optimization.
Investing by Analyzing Active Loans
Utilizing active loan data from crypto lending platforms offers key insights into their financial health. Here are some tips from our analysts:
Monitor Trends Over Time: Examine a platform’s active loan balance over a period to determine if it is growing consistently, which may signal increasing user trust. Pay close attention to significant drops in the loan balance, as these might reflect market instability or declining confidence in the platform.
Source: create.vista.com
Asset Diversity: Assess whether loan balances are diversified across multiple assets or concentrated in just a few. Platforms with concentrated loans may be dependent on specific markets (like stablecoins), potentially exposing them to higher volatility risks.
Institutional Participation: Institutional investors can play a major role in increasing loan balances and may indicate sustained confidence in the platform.
Incentive Programs: Keep in mind that temporary increases in active loan balances may result from incentive programs, which may not necessarily reflect the platform’s long-term potential.
Conclusion
Tracking loan balance growth, loan diversification, institutional involvement, and any short-term spikes from incentive programs is essential for evaluating the long-term potential of crypto lending platforms.
Additional elements to consider are current lending and staking rates, along with the broader crypto market’s health. These factors can impact borrowing trends, as investors seeking higher returns may borrow at low rates to benefit from attractive stake yields or capitalize on potential token price gains.
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