Compound is a lending platform built on Ethereum that enables users to borrow or lend by locking their crypto assets into the protocol. Interest rates are determined algorithmically based on the proportion of assets lent out. Compound tokens or cTokens are ERC20 tokens representing a user's funds deposited in Compound.
cDAI is the first decentralized, collateral-backed stable cryptocurrency.
Check the current cDAI price, market cap, current circulating supply, total supply, trading volume, historical statistics, etc., along with in-depth information on several of the biggest and fastest-growing cryptocurrencies on CoinStats, one of the best crypto platforms around.
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Read on to learn everything you need to know about Compound and the cDAI token.
What Is Compound DAI
Compound DAI is a representation of the DAI stablecoin by DeFi lending and borrowing protocol Compound. The protocol is one of the open financial applications powered by blockchain technology that offers an alternative to traditional financial institutions. It allows borrowers to take out loans and lenders to provide loans by locking their crypto assets into the protocol. Compound tokenizes the assets locked in the system through the use of cTokens.
The interest rates are determined by the supply and demand of each crypto asset and are generated with every block mined. Loans can be paid back, and locked assets can be withdrawn at any time.
Compound's native token COMP is a cToken that allows users to earn interest on their money while also transferring, trading, and using that money in other applications.
As of October 2021, Compound is among the top 10 DeFi platforms by total value locked in its smart contracts, the amount of which stands over 11 billion.
DAI is one of the leading stablecoins released in December 2017. Managed by Maker DAO (decentralized autonomous organization), DAI is entirely decentralized. It reflects the price of the U.S. dollar and is collateralized by various cryptocurrencies, which are deposited to smart-contract vaults when new DAIs are minted.
Learn more about DAI on this page.
Compound DAI is an Ethereum-based ERC-20 token that allows earning interest through DAI or using the token as collateral. cDAI was launched in November 2019.
Depositing DAI stablecoins to Compound, token holders get cDAI. The token's max supply isn't limited. Compound issues new tokens whenever users deposit DAI to the lending pool.
Compound Founders
The software company Compound Labs stands behind the development of Compound. It was founded by Robert Leshner and Geoffrey Hayes in 2017 and officially launched on Ethereum in 2018.
Robert Leshner is the current CEO of the company. He's also a venture partner at Robot Ventures, a pre-seed investor focused on fintech and blockchain companies. The experience of Robert Leshner also includes management roles in different financial companies.
In 2011, the Compound CEO founded Safe Shepherd, a personal information protecting company.
Geoffrey Hayes, Compound's current CTO, is an experienced software engineer.
How Does cDAI Work
Initially, the Compound protocol had one smart contract for liquidity that supported various cryptocurrencies. In May 2019, Compound v2 went live, bringing the innovation of cTokens. With the upgrade, separate liquidity pools for each supported cryptocurrency were created. Compound DAI is one of them.
Depositing DAI stablecoin to Compound, users get cDAI. DAI is a key component in the concept of Collateralized Debt Positions or CDPs. CDPs are the smart contracts of the Maker Protocol that users can lock their collateral assets in and generate DAI.
Dai is the first decentralized, collateral-backed stablecoin. It's an ERC-20 token that attempts to maintain a stable 1:1 value with the U.S. dollar by locking other crypto assets in smart contracts.
Unlike other stablecoins, which are issued and controlled by a central authority, DAI is the native token of the Maker Protocol – a decentralized autonomous ecosystem of smart contracts running on the Ethereum blockchain.
cDAI is a token with a volatile price and doesn't function as a stablecoin. DAI aims to reduce crypto price fluctuations. On the other hand, cDAI aims to grow in value, thus providing token holders more options to increase their profits.
DAI holders provide their tokens to the liquidity pool and get cDAI. At the same time, other users borrow from the liquidity pool. The borrowed funds can be used for arbitrage trading or other goals. The maximum amount available for borrowing is limited based on the collateral factors of the supplied assets.
Compound DAI makes it possible to use the token outside the Compound environment, i.e., by getting cDAI, token holders can lend it to UniSwap to earn rewards.
Currently, cDAI is the largest Compound token on the market by the borrowing amount, and it's the second-largest after Ether by the lending amount.
Compound's risk management layer Comptroller approves or denies transactions. Due to this mechanism, there is a value created for cDAI in each block.
Interest and borrow rates change for different cToken pools, according to the supply and demand at the given time. Getting insights into total supply/borrow amount and rates is possible via Compound's market overview and the Compound app.
To track prices of supported assets, Compound uses data feeds of the decentralized oracle network Chainlink.
There is an Interest Rate Index configured when an interest rate changes. It's resulted from activities such as adding liquidity, withdrawing, borrowing, repaying, or liquidating assets. Users' earned interests are the ratio of the current index divided by the index when the user's balance was last checkpointed.
10% of interest goes to the reserve fund, and the remaining amount goes to liquidity providers.
Visiting Etherscan, Ethereum's block explorer, users can see the cDAI token's smart contract and get various data on all related activities.
Liquidity providers can redeem their tokens and the earned interest into their wallets anytime. It's important to note that the provided funds are locked in the smart contract; cDAI represents the stake and serves as a means of securing the supplied DAI and distributing interest.
How to Buy cDAI
You need to have an account on a crypto exchange to trade Compound DAI. So, the first step for beginners will be signing up for a trading platform after checking whether it supports cDAI. Among the largest crypto exchanges that support cDAI is Binance. You can also acquire cDAI through decentralized platforms, including Compound and UniSwap.
Follow these steps to buy cDAI:
Step 1: Register on Fiat-to-Crypto Exchange.
Step 2: Buy Bitcoin BTC with fiat money. Once you finish the KYC process, you will need to add a payment method. You can provide a credit/debit card or use a bank transfer. Depending on the country of your residence, some countries will offer instant cash deposits with low fees. Now you can buy BTC.
Step 3: Transfer BTC to an Altcoin Exchange. Since cDAI is an altcoin, you must transfer your coins to an exchange that trades cDAI in various market pairs. Deposit BTC to the exchange, and you're all set to purchase cDAI.
Step 4: Acquire a hardware wallet: If you plan to keep your cDAI for a considerably long time, you may want to securely store them in a wallet. Hardware wallets like Ledger Nano S and Ledger Nano X are the most popular options in this category.
You can also manage all your activities on CoinStats. Simply connect your accounts to the crypto tracker and get access to various exchanges, compare trading conditions, trade and store tokens securely, and much more.
