The compound protocol will allow you to earn annual interest on your tokens through compound’s decentralized protocol running on Ethereum.
You can earn interest on BAT token, Maker DAI, Ethereum, and more. This chart below shows all the different currencies that you can earn interest on. There are multiple different options to choose from below. This website is focused on most ERC-20 tokens, but also has wrapped BTC as an option.
The highest paying percentage on the site is Maker DAI currently paying a current annual percentage of over 11%, but this is subject to change. Maker DAI is probably one of the best known stablecoins out there besides Tether and it has built a good reputation as a decentralized stablecoin.
The value in Compound’s decentralized protocol for lending and borrowing is the ability to lock in some of those cryptocurrency profits you have been working hard for.
For example, DAI is a stable coin and since the value will always be very close to $1, earning 11% per year on DAI tokens would be about 10.5% more per year than your bank will pay you for holding your funds with them.
Also, if you needed a loan in one of these coins, there are more flexible lending options here and lower interest rates than what you would probably pay at your bank for taking out the same amount.
In addition to all of these potential ETH based tokens that you can lend or borrow against, you also have the option to deal with more stable coins such as the USD coin, a decentralized stablecoin listed on CoinBase with it’s source code being contributions from CoinBase and Circle.
Compound USD coin is another unique feature of Compound’s protocol because “As a market earns interest, its cToken becomes convertible into an increasing quantity of the underlying asset.”
While the increase in the price of the cUSDC, cETH, is not extreme, it is an added benefit to using the compound protocol. For example, over time you are likely to have more of the underlying asset when using the compound protocol.
Here is an example from their site:
“Let’s say you supply 1,000 DAI to the Compound protocol, when the exchange rate is 0.020070; you would receive 49,825.61 cDAI (1,000/0.020070).
A few months later, you decide it’s time to withdraw your DAI from the protocol; the exchange rate is now 0.021591:
- Your 49,825.61 cDAI is now equal to 1,075.78 DAI (49,825.61 * 0.021591)
- You could withdraw 1,075.78 DAI, which would redeem all 49,825.61 cDAI
- Or, you could withdraw a portion, such as your original 1,000 DAI, which would redeem 46,315.59 cDAI (keeping 3,510.01 cDAI in your wallet)”
Also, in addition to all of these unique features, you can view all of the questions you might still have over on their Medium page. Here is a link to the FAQ: https://medium.com/compound-finance/faq-1a2636713b69
You will need a MetaMask or similar compatible wallet like Trust Wallet in order to use the site. Please check all gas costs in ETH and make sure you have enough Ethereum in your wallet before trying to use the site.
Also, keep in mind that while the Compound protocol source code is public, and the code has been audited this doesn’t not mean that there isn’t any security risk. However, given the reliability of Ethereum’s network, the risk is still low.
Here is a link to the website: https://compound.finance