cTokens vs iTokens – Totle
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.
Two tokens have dominated this market so far: cTokens and iTokens. In this article, we will highlight the major differences between the two tokens and show you how to purchase them with Totle.
Compound created cTokens to simplify the process of earning interest from their cryptocurrency lending markets.
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 This restricted the activity on the market as locked-up funds could not be used until retrieved, and, once withdrawn, also had the negative side effect of decreasing the amount of funds accessible to borrowers.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, USDC, REP, ZRX, WBTC, and BAT. Below, you can see the current rates available for these tokens.
Compounding Method: The cTokens are compounded every time they’re mined into an Ethereum block. This happens in unpredictable intervals and results in a high correlation with Ethereum activity.
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.
Failure Mode: In the event that a borrower defaults on their loan and their collateral doesn’t sell for enough to cover their debt, this reduces the amount of liquidity available to users converting their cTokens back into the underlying asset. If too many people attempt to withdraw their assets at the same time, the lenders who convert the latest will have to wait until new liquidity, either from borrowers repaying their debts or new lenders joining the pool, is added into the cToken market’s circulation.
Published at Fri, 22 Nov 2019 12:59:40 +0000