cDAI is like a real-time Dai savings account
One of the most popular ways to earn interest in the DeFi space is to fund the lending market. But do you know that it is easier to earn interest now than before. As you know, if you provide tokens on the compound in the lending market to allow the agreement to lend to others, you can earn interest at a dynamically adjusted interest rate. Now, the Compound protocol is going to be upgraded to v2. This update includes a major development: the addition of a compound token, or cToken, including cDai, cETH, and so on.
Previously, Compound used only one smart contract to manage the lending market for all kinds of assets. With this upgrade, each token in the Compound market has a separate smart contract called the Asset Gateway. You can't underestimate this, because now, after you deposit funds in the Compound, you can get cToken directly – the amount of money that represents your supply and the accumulated interest.
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So how does this model work?
Previously, in Compound v1, the interest you earned was added directly to your Compound account balance, which is still in the Compound market. However, in Compound v2, if you inject Dai into the market, you will receive cDai directly. As the market accumulates interest, the cToken in your hand becomes more valuable. In exchange for the principal, you don't need so many cTokens. It is. In other words, the price of Dai and cDAI will change proportionally with interest rate.
Why is cDai great?
The best design for cToken is that it is an ERC20 token. Compound opens up a whole new world for practicality and mobility. All of the assets that were locked in the Compound are now able to flow throughout the ecosystem and are ready to be used in any situation at any time.
You can transfer, trade cToken, or save cToken to a cold wallet, just like depositing a token. In fact, you can even integrate it into other protocols. In other words, any protocol that can lock tokens can accept cToken. This way, you can continue to earn interest on the convenience that the Compound agreement has already provided you.
Demonstrating the composability of DeFi
The best example of this new interoperability is the Dai and cDai trading pools on the Uniswap exchange. Users (and smart contracts) can exchange their Dai or other tokens with cToken to enjoy the benefits of the Compound protocol. Injecting cDai into the Uniswap Mobility Pool allows you to earn interest on Compound while earning a fee in the Uniswap related trading pool.
You can try it now : on cDAI.io, change any tokens to cDai in one second and start to pay interest.
Original link: https://defipulse.com/blog/what-is-cdai/
Author: DeFi Pulse
Source: Ethereum fans
This article is authored by the author to translate and republish EthFans.