How to Analyze Crypto Lending Platforms Using Active Loans

Incorporating active loan data from crypto lending platforms can give you valuable insights into the health of their businesses. Here are a few tips from our analysts.

At Bitcoin Market Journal, we treat crypto tokens like stocks when investing. While there are key differences, we analyze crypto “companies” like traditional companies and diversify our investments with a mix of both. More on our approach here.

One of the key metrics we use to analyze winning crypto investments is active loans. In this guide, you’ll learn how they work, and some of the top projects with high active loan balances, including Aave, Spark Protocol, Morpho, Compound, and Venus

What are Active Loans?

On lending protocols like Aave and Compound, an “active loan” refers to an outstanding loan that has yet to be fully repaid. Typically, the loan recipient provides collateral in the form of other cryptocurrencies.

As an analogy, think of margins on a stock account. In a margin account, you can borrow money from the broker to buy more stocks than you could with your own cash. However, to do this, you must put up some of your own assets (stocks or cash) as collateral.

The broker lends you money, and you repay them with interest over time. If the value of your stocks drops too much, the broker may require you to add more collateral or liquidate your assets to repay the loan, protecting their downside risk.

When you lend on a crypto lending platform, it’s a bit like buying bonds from a government or company. You lend them your money (or crypto), and in return, they pay you interest over time. In blockchain protocols, you lend your assets to borrowers, and in return, you earn a predictable return based on the interest rate agreed upon in the smart contract.

Top Crypto Investments by Active Loans

Aave: Aave currently has $7.50B in active loans, which has more than doubled year to date.

Aave’s active loan balance has increased in part due to its dominant role in the DeFi space. As DeFi gains more mainstream attention, demand for borrowing assets through platforms like Aave naturally rises.

Aave has also continued to expand its number of supported cryptocurrencies and stablecoins available for lending and borrowing. This diversification of available assets attracts more borrowers and lenders, contributing to a higher loan balance.

Additionally, Aave has worked to build a strong reputation for being a secure and reliable platform, and its governance token, AAVE, allows users to vote on protocol updates. Strong security measures and community involvement tends to attract more borrowing activity, particularly as Aave maintains its standing in the DeFi space.

Spark Protocol: Spark Protocol’s current active loan balance is $1.44B, hovering consistently over the $1B mark over the past year.

Spark Protocol is deeply integrated with Sky (formerly MakerDAO) and centered around lending USDS (formerly DAI). In 2024, demand for USDS has grown due to its role as a reliable decentralized stablecoin in a volatile market, and this demand has led to an overall increase in Spark Protocol’s loan balance.

Sky has also seen growth in USDS minting, particularly through platforms like Spark, which offers attractive borrowing options and low interest rates. An increase in minting USDS means more borrower activity through Spark, thus raising its active loan balance.

Spark has also managed to maintain competitive interest rates, making borrowing on the platform more appealing. This attracts users who want to borrow cheaply to either reinvest in other DeFi protocols, hold USDS as a hedge against market volatility, or engage in trading.

Morpho: Morpho’s active loan balance is around $766.31M. This crypto project is able to maintain a high active loan balance due to its hybrid lending model which optimizes lending rates by combining both pool-based and peer-to-peer lending.

When a direct match is available, borrowers can secure better interest rates via peer-to-peer lending, while any unmatched loans fall back to pool-based protocols, ensuring liquidity. This efficiency attracts more borrowers and lenders looking for improved returns compared to traditional pool-based lending platforms.

Morpho also directly integrates with top DeFi lending platforms like Compound and Aave, allowing users to tap into the liquidity of these established platforms – while at the same time, benefiting from Morpho’s interest rate mechanics. Borrowers and lenders can trust the platform’s liquidity and infrastructure while getting better rates, which drives more activity and a higher loan balance.

Compound: Compound’s YTD active loan balance is $656.87M, dropping slightly from where it was at the beginning of the year at $937.55M.

Compound is one of the largest DeFi lending platforms, and its diversity of supported assets attracts significant liquidity, making it a popular platform for borrowers. Compound also has strong security and a strong smart contract infrastructure, making it a top choice for institutional investors.

However, unlike the other crypto projects on this list, Compound’s active loan balance has dropped since the beginning of the year. This is partially due to market