cTokens vs iTokens
What is the difference between Compound’s cTokens and Fulcrum’s iTokens?
Update 10/12/19: Details on cTokens and iTokens updated by Compound and bZx, respectively. We thank them for their detailed input.
A new class of cryptocurrency assets has taken the industry by storm: interest-earning tokens.
These tokens gradually increase in value over time. The rate at which they increase in value is reflective of the demand from borrowers for funds contributed to lending pools. After any period of time, you can sell these tokens for their increased, current value on the open market.
These tokens can be traded, used as collateral, built into products by developers, or placed into storage for safe-keeping.
Originally, lenders needed to have their funds locked up in a pool of cryptocurrency to earn interest. This restricted the activity on the market as locked-up funds could not be used until retrieved, and, once withdrawn, also had the negative side effect of decreasing the amount of funds accessible to borrowers. Now, funds earning interest on Compound can be sold on the open market in the form of cTokens, without reducing the amount of funds available to borrowers.
cTokens act as proof of ownership for funds contributed to a Compound lending pool. To create a cToken, simply supply a lending pool on Compound with a supported token and you will mint new cTokens in return. You can also exchange cTokens for the tokens they represent at any time.
Tokens Supported by Compound: Compound currently has lending markets for ETH, SAI, DAI, USDC, REP, ZRX, WBTC, and BAT. Below, you can see the current rates available for these tokens.
Market Size: There is currently 91 million USD locked in Compound.
Compounding Method: The interest for cTokens compounds every time they’re mined into an Ethereum block.
Valuation Method: cTokens continually increase in value at a rate reflective of the demand from borrowers. This is because the supply of the underlying asset increases as borrowers pay interest on their loan; as the supply of funds that cTokens represents grows, cTokens become more valuable.
Liquidation System: In the event that a borrower’s collateral reaches below the required margin, Compound liquidates the borrower’s collateral to centralized exchanges and order books due to their deep liquidity. This large supply of liquidity greatly minimizes the negative impact of slippage.
Failure Mode: In the event that a borrower defaults on their loan and their collateral doesn’t sell for enough to cover their debt, losses are sustained by the lenders latest to exit the pool. If too many people attempt to withdraw their assets at the same time, the lenders who convert the latest will not be able to retrieve their funds unless new liquidity, either from borrowers repaying their debts or new lenders joining the pool, is added into the cToken market’s circulation. Lenders are entitled to their entire position on a first-come-first-serve basis. This means that the average user will suffer no loss at all. Additionally, in preparation for such an event, Compound has large liquidity reserves in place to meet customer order needs. To date, a borrower has never defaulted on a Compound loan.
Like cTokens, iTokens increase in value at a rate reflective of the demand from borrowers for funds contributed to their lending pools. Fulcrum is unique in that borrowers are provided with the option to use funds for leverage when executing margin trades.
Creating and burning iTokens is as simple as contributing and removing funds from Fulcrum lending pools; lenders receive iTokens for their contributions and users retrieving their funds can convert iTokens into the funds they represent at any time.
Tokens Currently Supported by Fulcrum: Fulcrum currently has lending markets for ETH, SAI, DAI, USDC, REP, ZRX, WBTC, SUSD, LINK, and KNC. Below, you can see the current rates available for these tokens.
Market Size: There is currently 3.6 million USD locked in Fulcrum.
Compounding Method: Interest for iTokens compounds every second. This makes it easy for users to accurately calculate the current interest rate while reducing the risk of front-running attacks.
Valuation Method: The current value of iTokens is dependent on the pool value. As demand from borrowers grows for funds from the pool, so too does the value of the pool and therefore an iToken.
Liquidation System: In the event that a borrower’s collateral reaches below the required margin, Fulcrum liquidates the borrower’s collateral to KyberSwap, a popular decentralized exchange. Positions are only partially liquidated to adjust to the collateral back to above the required amount. This reduces the risk of excessive slippage negatively impacting the price of the liquidated collateral.
Failure Mode: In the event that a borrower defaults on their loan and their collateral doesn’t sell for enough to cover their debt, losses are socialized throughout the pool. Lenders are entitled to their entire position less any losses the pool has incurred. To reduce the impact of losses to the pool, there is a bZx insurance fund in place.
A benefit of this is that it makes risk management easier. Since losses to the underlying iToken pool are the same for each user, you can build hedging instruments that account for moments of high volatility. This is because the exchange rate for iTokens will decrease in the event the pool suffers losses.
How to Buy cTokens and iTokens
The easiest way to buy cTokens and iTokens, and be sure that you’re getting them at the best pricing available, is through Totle.
Totle allows you to directly purchase cTokens and iTokens with Ether or any of the popular ERC-20s we support.
Totle is also the only place where you can swap cTokens and iTokens directly for each other!
Swap for cTokens and iTokens now: Totle Swap
To build cToken and iToken swaps and payments into your product, access the Totle API here: Totle Documentation