We currently support two sets of interest-bearing tokens in Edge, cTokens and aTokens, with the possibility of more sets being added in the not too distant future. The specific tokens we support are generated from the operation of the Compound (cTokens) and Aave (aTokens) money market dapps.
Aave and Compound depositors earn interest paid by borrowers, much like the traditional financial system, but instead of a bank and the legal system mediating these flows, all lending and borrowing activities are automated, publicly auditable, and have no downtime thanks to the properties of the Ethereum blockchain. You can think of the Ethereum smart contracts powering these dapps as money robots, handling the inflows and outflows a traditional financial institution normally would. In addition, no personal information is needed to interact with these money markets. All that’s needed is an internet connection, some Ethereum assets, and a crypto wallet.
cTokens vs aTokens
In the case of Compound and Aave, depositors are minted interest-bearing tokens that represent claims on their deposit. Over time, as the pool collects interest payments from borrowers, holders of the interest-bearing tokens should be able to claim more of the asset than they originally put in minus gas (transaction) fees. These tokens are conceptually the same, but how the interest is accounted for is different for each group of holders.
Aave’s aToken uses a unit increase model, meaning a holder’s balance of aTokens will increment up as the asset pool grows from interest payments made by borrowers. For example, if you deposit 1 ETH in the Aave ETH pool you’ll be minted 1 aETH token. As the pool accumulates interest your aETH token balance will increment up so that your aETH token balance is greater than 1, reflecting your claim on a growing pool of assets. When an aETH token holder goes to redeem the underlying ETH their aETH will be redeemed 1:1 with the underlying ETH.
Suppose the above holder has held their aETH token for a year and they are looking to redeem their aETH balance for the underlying ETH. They notice that their aETH balance is now 1.05. This balance entitles them to 1.05 ETH of the existing ETH pool. If the aETH holder does redeem their aETH they will have earned .05 ETH in interest over that year, or 5% APY.
In contrast, Compound’s cToken uses an exchange rate increase model, meaning the exchange rate between the interest bearing cToken and the underlying asset should increment up over time as interest payments accumulate in the pool.
Depositors in Compound are not issued more cTokens over time like aToken holders are. The amount of cTokens, for any given deposit, stays the same. Instead, the exchange rate of the cTokens will be algorithmically pushed up as the pool accumulates interest payments from borrowers. Even though the amount of cTokens won’t change, the price or value of the holder’s cTokens will increase over time.
Let’s use our 1 ETH depositor again for our cToken example. For the sake of this example, the user deposits 1 ETH in the ETH Compound pool and they receive 40 cETH in return, their exchange rate is 0.025 ETH/cETH at the time of deposit. As interest is accumulated over time the exchange rate of ETH/cETH will be pushed up by the Compound protocol, based on the interest payments being made to the ETH pool, giving the cETH holder the right to claim more ETH than they put in initially. Imagine the depositor holds their 40 cETH for a year like the previous example and redeems their 40 cETH for 1.05 ETH a year later. This would mean the exchange rate or redemption price of cETH has risen from 0.025 ETH/cETH to 0.02625 ETH/cETH in a year. The holder’s interest rate on the year equates to about 5% APY minus any gas fees paid for the deposit and redemption transactions.
Keep in mind that interest rates in Aave and Compound are dynamic, always shifting with the flow of funds in and out of the protocol, so it’s impossible to know beforehand what your exact interest earned over a certain timeline will be. However, these applications do show you the current interest rate of any given asset pool and we can track historic interest rates of these pools to get an idea of what you can expect to earn.
On both Aave and Compound’s sites, they show the current interest rates for each market they serve and they both have thorough documentation that outlines not only how these rates are calculated but almost everything else needed for the curious and diligent to understand how these applications work at a very granular level: Compound Documentation & Aave Documentation. A good third-party site that aggregates rates across the ecosystem is DeFi Rate. It has a ton of good information for users looking to lend and borrow in DeFi.
How to Add aTokens & cTokens to Edge
Both Compound’s cTokens and Aave’s aTokens are ERC-20 tokens that are supported by our swap partner Totle, an Ethereum DEX aggregator, but they’re not supported by our other exchange partners. Because of this, cross-chain swaps, such as BTC to aDAI, are not yet supported. To swap into these interest-bearing tokens you’ll need to hold ETH in your Edge Wallet. Totle will be able to service ETH to ERC-20 token swaps as well as ERC-20 to ERC-20 swaps.
Make sure you have ETH in your Edge wallet to pay the gas fees (transaction fees) for completing this swap. If you currently hold any other ERC-20 tokens in your Edge Wallet you can swap those as well, but regardless, you will need to have ETH to pay Ethereum gas fees.
Steps to Swap:
- On your home screen you should see an ETH Wallet. Tap down on your ETH wallet and gently slide it to the right. You should see three dots pop out on the left side of the wallet.
- Tap on those dots and a screen should slide up from the bottom of your wallet with a list of options to choose from.
- Tap on the “+ Add/ Edit Tokens” option. You’ll be taken to a scene where you can see all of the tokens we list by default.
- Tap on any and all tokens that you want added to your ETH wallet. The interest-bearing tokens have either an “a” in front of them or a “c” in front of them. For instance aDAI is interest bearing DAI from the Aave money market and cDAI is interest bearing DAI from the Compound money market.
- Press save.
- Check to see that all of the interest bearing tokens or any others you selected are now listed under your ETH wallet.
- You are now ready to swap into those assets, as well as send and receive the asset in your Edge Wallet.
- Tap on the Exchange button on the bottom right corner of your wallet. This will take you to the exchange scene with a “Source Wallet” and a “Receiving Wallet” in view.
- Your “Source Wallet” should either be an ETH wallet or a wallet which holds another ERC-20 token.
- Your receiving wallet should be the interest-bearing token you’re attempting to swap into.
- Type in the amount you want to exchange
- Press “Done” or “Next”. A swap scene powered by Totle should appear with your swap details. Review the details to make sure they are correct. Please keep in mind that ETH transaction fees have been very expensive recently due to extremely high network activity. This makes many small transfers and swaps uneconomical. Make sure your swap makes sense for you.
- Slide to confirm and your interest-bearing tokens should show up in a few minutes!
With interest rates across the world heading towards 0% and in some places plunging below 0%, crypto-based finance offers much needed relief for savers all over the world. With no central bank to push down interest rates artificially, a dynamic market is allowed to emerge that rewards users for saving money.