If you are a regular user of the Publish0x platform, you have probably built up a small collection of BAT tokens by writing and/or generously tipping authors. Instead of just tucking them away in your wallet, why not earn a little interest on them?
One of the latest buzzwords in crypto these days is DeFi (Decentralized Finance), and the technology is certainly living up to the hype. The idea is to cut the middle man out of finance and provide the same services via the use of smart contracts. The most well-known DeFi projects are running atop the Ethereum blockchain and include:
- 0x: An open protocol that allows anyone to create a decentralized exchange, where people can exchange digital assets in a peer-to-peer fashion.
- MakerDAO: A service that provides loans, issued in the form of a stablecoin (DAI), and backed by Ether.
- Compound Lending: A decentralized service that allows users to lend and borrow tokens in a trustless manner.
Through Compound Finance, you can lend out a variety of Ethereum-based tokens including Augur, DAI, 0x, and even Basic Attention Coin (BAT)! Each token offers a different interest rate, which varies in real time depending on supply and demand. When you deposit BAT into the liquidity pool, you immediately start to earn interest on it, and you can withdraw your BAT at any time.
The interest paid by the borrowers is equally spread among all the lenders, which explains the difference between lending and borrowing rates.
So that's great that you can earn interest on your BAT tokens, but are there any risks involved?
Of course, the number one concern lenders have is that they won't get their money back. Fortunately, the system has been designed to protect lenders by requiring borrowers to over-collateralize their loans. Therefore, you can rest easy knowing that the borrower cannot default on you.
What if Compound disappears or some organization decides to shut them down? Due to the fact that Compound is a decentralized app (dapp), you don't have to worry that Compound may go out of business or get taken down by some entity. The smart contracts that control Compound are permanent, uncensorable and will continue to operate indefinitely.
Because Compound is a decentralized application, we must also consider the possibility that a bug exists in the smart contract code. As a precautionary measure, Compound has had their code audited by multiple parties, including OpenZeppelin and Trail of Bits, and no faults have been exploited yet.
With over a hundred million dollars worth of digital assets locked up in the Compound contract (quite the honeypot!), no hacker has yet managed to steal any funds.
Compound, like the other DeFi decentralized apps, will prove themselves over time, just like Bitcoin did.
Now that we have covered the potential risks, let's go over the process of how to lend your BAT tokens.
Open your web browser and navigate to app.compound.finance.
Connect to the site using your Metamask, Ledger, or Coinbase wallet. For this demo, I will use the Metamask Chrome extension.
Authorize Compound to connect to your wallet when prompted to do so.
Click on "Basic Attention Token" from the list of lendable assets.
Each asset needs to be authorized individually before you can lend it out, so click on the "Enable BAT" button:
Sign the transaction to allow Compound to use your BAT. This will cost you a little bit of ETH (gas).
The button text will change to "Enabling BAT" as the site waits for the transaction to be confirmed by the network.
Click the supply button once the transaction has been confirmed
Enter the amount of BAT you wish to lend.
Sign the transaction using Metamask and wait for confirmation.
That's it! You'll now start earning interest on your BAT tokens.
You may need to run some calculations, to see if the amount of BAT you'll be earning in interest is worth more than the gas transactions. But in any case, I think it's worthwhile to try it out, even if just as a learning experience. Decentralized lending is likely to pick up speed in the coming months and years, so it's definitely worth getting yourself familiarized with it now.