cTokens vs iTokens – Totle

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 This restricted the activity on the market as locked-up funds could not be used until retrieved, and, once withdrawn, also had the negative side effect of decreasing the amount of funds accessible to borrowers.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.

cToken interest rates on 22/11/2019

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.

bZx created iTokens to simplify the process of contributing funds for borrowers to use on their margin trading platform, Fulcrum.

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.

iToken interest rates on 22/11/2019

Compounding Method: Unlike Compound, interest for iTokens compounds every second. This makes it easy for users to accurately calculate the current interest rate.

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.

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. 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.

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 directly for iTokens!

Swap for iTokens and cTokens now: Totle Swap

To build iToken and cToken swaps and payments into your product, access the Totle API here: Totle Documentation

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Published at Fri, 22 Nov 2019 12:59:40 +0000

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