cDAIPrice

(CDAI)

cDAI (Compound DAI) is a cryptocurrency token issued by the Compound Protocol. It represents a user's DAI stablecoin deposit within the Compound lending market. As an interest-bearing token, holding cDAI means that the underlying DAI deposit is actively earning interest. It essentially acts as a receipt for your lent DAI, with its value appreciating over time due to the accrued interest.

cDAI is created, or "minted," when users deposit their DAI stablecoins into the Compound protocol. When a user provides DAI to the protocol's lending pool, the system automatically issues an equivalent amount of cDAI to the user's wallet. This process marks the user's participation in the lending market, and the minted cDAI then begins to accrue interest based on the protocol's rates. To redeem the original DAI plus accrued interest, the cDAI is returned to the protocol and burned.

The primary purpose of cDAI is to enable users to earn interest on their DAI stablecoin holdings within the decentralized finance (DeFi) ecosystem. By holding cDAI, users effectively lend their DAI to others through the Compound protocol. Beyond earning interest, cDAI can also be utilized as collateral for borrowing other digital assets, offering flexibility and leverage to users. It functions as an alternative store of value that generates returns and can even be used as a medium of exchange within compatible protocols.

No, cDAI does not maintain a 1:1 peg with DAI. Unlike a direct stablecoin, cDAI represents a share in a growing pool of DAI. As interest accumulates within the Compound lending market, the value of cDAI relative to DAI gradually increases. This means that over time, one cDAI will be exchangeable for more than one DAI. The cDAI token's value appreciation is how users realize the interest earned on their deposited DAI.

cDAI accrues interest dynamically based on the supply and demand for DAI within the Compound protocol. The interest rates are algorithmically determined by the protocol and update with every new block confirmed on the underlying blockchain, typically Ethereum. As the cDAI token represents a share in the overall DAI lending pool, the interest earned directly increases the value of each cDAI token relative to DAI, rather than paying out separate interest tokens. Users simply hold cDAI, and its exchange rate for DAI steadily rises.

cDAI carries several inherent risks. It is exposed to the systemic risks of the Compound lending protocol, including potential smart contract vulnerabilities or governance attacks. Furthermore, cDAI relies on DAI, which is issued by the MakerDAO protocol, introducing dependency risks if MakerDAO encounters issues. The backing of DAI itself, which includes centralized stablecoins like USDC, presents a degree of centralization risk. Users also face general market risks, oracle risks if external price feeds are compromised, and potential liquidation risks if cDAI is used as collateral for borrowing.