MakerDAO & Compound: A new way to earn interest from our money
At DAppBoard we have recently started working on new decentralized finance protocol. In the second part of 2018saw a lot of new projects on DeFi going public, MakerDAO, Compound, Dharma, dXdy…
In 2019, we will continue to see release of new decentralized finance projects including, more stablecoins, security tokens and the implentation of the DAO(dxDAO).
First things, first: Let’s get some DAI
To get started, I connected to MakerDAO and opened a CDP (Collateralized Debt Position). MakerDAO allows you to deposit Ether as collateral and draw DAI against the amount of Ether deposited (The collateralization ratio should be kept above 150% to avoid liquidation of the CDP). For more about the DAI stablecoin read this great introduction.
0. The details of the transaction are detailed here https://etherscan.io/tx/0x88cd920f4a986d84d0fc37fb294b2186124495e19d54404c475f7839f27c734c
- First, I made a deposit of 0.020 Ether
- I decided to take 1.2 DAI @ 204% of collateralization ratio (highly collateralized just for the experience). The maker lending rate is currently 0.5% APR
- I could have taken up to 1.7 DAI, however this would have put my CDP at a very high risk of being liquidated.
Earn interest from our DAI
From the MakerDAI dapp, we do have now 0.020 Ether which is locked in the CDP and the 1.2 DAI borrowed @ 0.5% APR.
Next I go to the Compound to lend out the DAI that I collateralized above.
By supplying DAI to the Compound protocol and I am able to earn interest.
Details of the transaction: https://etherscan.io/tx/0xdfc9bc29c451c88a4fbdbfe291ab4740b4dbfe9b5a21abf850b4e8386b49df3c
From my address (1) I sent to the Compound smart contract (2) the 1.2 DAI (3) that I got from the MakerDAI.
After supplying my DAI, I am able to lend it in my account which only takes three on-chain transaction
Interest rates in the Compound protocol adjust based on the supply and demand unique to each asset; as borrowing demand increases, so will the interest you earn.
“Interest accrues each Ethereum block; every ~15 seconds, your balance will increase by (1/2102400) of the quoted interest rate.”
(For more check here.)
Now I can sit and watch my DAI balance grow in real time (see image below).
Let’s sum up the whole process
- I created a MakerDAO CDP and locked 0.020 ether into the CDP
- Generated 1.2 DAI @ 0.5% APR from my CDP
3. Transferred the 1.2 DAI to the Compound dapp and earned interest at currently 3.82% .
Total Interest earn between Compound minus MakerDAO is ~+3.3%. At any time I can withdraw my original DAI (plus the interest) and close the CDP. No constraints, no business office hours.
Now all that’s left to do is sit and watch my DAI balance grow.
The whole experience was simple and straightforward. These are only two applications of decentralized finance that empower individuals to earn interest without interacting with intermediaries. MakerDAO and Compound are only in their initial stages and will continue to develop and bring new use cases for people around the world. I am very excited to see what will be built on the top of all these DeFi protocols.
At Dappboard, we provide an easy and visual way to understand how people use decentralized applications. Stay tuned for more stories about DeFi and more experiences using dapps. If you want to know more about our work or connect with our team, please find us on twitter at DappBoardTeam or contact us
Note: This post is not investment advice and the space is still highly experimental.