Paper 2026/1728

A Controlled Case Study of Design Trade-offs in DeFi Lending Protocols

Abstract

Decentralized lending protocols encode credit markets as smart contracts whose design choices affect gas cost, capital efficiency, liquidation behavior, and risk allocation. We compare Aave V3, SparkLend, Compound III, and Morpho Blue in matched Ethereum fork tests with wstETH collateral, USDC debt, and one fixed chain state. The tests measure call-path gas, annualized rates, thirty-day debt growth, maximum borrow capacity, and liquidation outcomes. It is important to note that the observed orderings for gas costs and rates are specific to this test artifact and could change under different collateral assets or utilization regimes. Within this setting, Morpho Blue has the lowest measured interaction call-path gas and highest borrow capacity, while shifting risk selection to isolated permissionless markets. Furthermore, Morpho Blue's evaluation uses a deployed market for rate measurements but a constructed market for liquidation testing. Aave V3 and SparkLend provide broader pooled-market abstractions with higher measured call-path gas. Compound III simplifies borrowing around one base asset per market; its low-gas absorb step is offset by a separate buy collateral liquidation path. We provide a Foundry-based Ethereum-fork test suite for reproducing these measurements and comparing lending-design trade-offs.