Understanding DeFi Lending Interest Rate Models: A Guide to Aave, Compound & MakerDAO
A clear guide to DeFi lending interest rate models, covering Aave, Compound, and MakerDAO, with practical tips, comparison tables, and future trends.
When working with MakerDAO, a decentralized autonomous organization that creates and manages the DAI stablecoin. Also known as Maker, it lets anyone lock crypto as collateral to generate a dollar‑pegged token without a bank.
The system hinges on three key pieces. First, DAI, an algorithmic stablecoin that stays close to $1 by over‑collateralizing assets. Next, users open Vaults, formerly called Collateralized Debt Positions, where they deposit ETH, BAT or other approved tokens and draw DAI against them. Finally, MKR, the governance token that lets holders vote on risk parameters, fee structures, and new collateral types. In simple terms, MakerDAO enables DAI, requires collateral in Vaults, and uses MKR to steer the protocol.
These pieces don’t live in isolation. The stability of DAI depends on the health of the vault collateral, while MKR holders act as a safety net—if the system runs low on collateral, new MKR can be minted to cover the shortfall. This feedback loop creates a self‑balancing ecosystem that has become a cornerstone of DeFi, powering lending platforms, payment solutions, and even crypto‑backed mortgages. Understanding how MakerDAO pieces interact gives you a solid base for exploring the deeper analyses, reviews, and how‑to guides that follow in the list below.
A clear guide to DeFi lending interest rate models, covering Aave, Compound, and MakerDAO, with practical tips, comparison tables, and future trends.
