Top Crypto Investments by Active Loans

At Bitcoin Market Journal, we invest in crypto tokens as if they were stocks. While there are important differences between the two, 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 volatility and increased competition in the DeFi space, as more new lending platforms have emerged that offer lower fees and better incentives.

Whether the project’s active loan balance will increase in the future will depend on several factors, including market conditions, the competitive landscape, and regulatory developments.

Venus: Venus’s active loan balance currently sits at $532.55M.

Venus’s high active loan balance can be attributed to the stable growth in the Binance Smart Chain ecosystem. Venus was built on Binance and therefore benefits from its overall expansion. As Binance continues to grow thanks to its fast transaction speeds and low fees, Venus sees more participation in lending and borrowing activities.

Like Compound, Venus’s active loan balance has also seen a slight drop since the start of the year when it was at $675M. Also similar to Compound, the drop can be attributed to increased competition and regulatory uncertainty.

How to Invest 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:

Watch trends over time. Look at a platform’s active loan balance over time to see if it’s growing steadily, as this can indicate user confidence. You should also pay attention to drops in loan balance, as it can indicate market uncertainty or loss of confidence in a project.

Number of assets. Are the loan balances spread across multiple assets, or just a few? If a platform’s loans are concentrated in a few assets, this can indicate reliance on specific markets (like stablecoins), which might expose the platform to volatility.

Institutional activity. Larger institutions can drive loan balance growth and may signal long-term trust in a project.

Incentive programs. When incentives are being offered, it can cause the active loan balance to rise temporarily, and therefore may not be a good indicator of long-term potential.

Investor’s Takeaway

Monitoring loan balance growth, how diversified the loan balance is, institutional participation, and whether an incentive program has caused a short-term spike are all critical factors for getting a better understanding of the long-term potential of crypto lending platforms.

Other factors to consider include the current lending rates, current staking rates, and overall health of the crypto market. These can all influence borrowing, as more aggressive investors try to borrow at lower rates to capture higher staking yields or token price increases.

Currently, Aave, Spark Protocol, Morpho, Compound, and Venus all have high active loan balances, but you should continue to monitor these projects before making any investment decisions.

And if you’re looking for more great metrics for finding winning crypto investments, subscribe to our Bitcoin Market Journal newsletter.

This analysis is to help make you a better-informed investor; it is not financial advice. Please use this as inspiration to do your own research, because the future may look different than the past. All investing involves risk; see our investing approach for how we manage risk through diversification. Never invest more than you’re willing to lose, and see losses as learning.

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