How to Deposit Tokens on Compound: Step-by-Step DeFi Guide

What Is Compound and Why Deposit Tokens?

Compound is a leading decentralized finance (DeFi) protocol enabling users to earn interest by depositing cryptocurrency tokens. By supplying assets like ETH, USDC, or DAI to Compound’s liquidity pools, you become a lender in its algorithmic money market. Your deposited tokens help facilitate borrowing while generating passive income through variable APYs—often outperforming traditional savings accounts. Unlike centralized platforms, Compound operates on Ethereum smart contracts, giving you full control without intermediaries.

Step-by-Step Guide to Depositing Tokens on Compound

1. Connect Your Wallet: Use MetaMask, Coinbase Wallet, or WalletConnect to link your Ethereum wallet to app.compound.finance.
2. Select Token to Deposit: Choose from supported assets (e.g., ETH, USDC, DAI). Ensure you have ETH for gas fees.
3. Approve Token Spending: Authorize Compound to access your tokens via a wallet transaction (one-time per token).
4. Initiate Deposit: Enter the token amount and confirm the transaction. Monitor gas fees for optimal timing.
5. Receive cTokens: You’ll get cTokens (e.g., cETH, cUSDC) representing your deposit. Interest accrues in real-time via these tokens.

Top Benefits of Depositing on Compound

• Competitive Interest Rates: Earn variable APY (e.g., 3-8% on stablecoins) updated algorithmically based on supply/demand.
• Liquidity Access: Withdraw funds anytime without lock-up periods.
• Transparent Operations: All transactions are verifiable on-chain via Etherscan.
• Composability: Use cTokens as collateral to borrow other assets within DeFi ecosystems.

Key Risks to Consider Before Depositing

• Smart Contract Vulnerabilities: Though audited, exploits remain possible (e.g., 2021 Iron Bank incident).
• Volatile Interest Rates: APYs fluctuate with market activity—monitor via Compound’s dashboard.
• Impermanent Loss (Liquidity Providers): Applies only if supplying to Compound’s Uniswap integration pools.
• Gas Fees: Ethereum network costs can erode earnings on small deposits.

Frequently Asked Questions (FAQ)

What tokens can I deposit on Compound?

Compound supports major ERC-20 tokens including ETH, USDC, DAI, WBTC, UNI, and LINK. New assets are added via governance proposals. Check the “Markets” tab for real-time listings.

Is “deposit ton” a specific feature?

“Deposit ton” likely refers to depositing a large volume (a “ton”) of tokens. Compound handles any amount—from $10 to millions—with the same process. No minimums apply beyond gas fees.

How do I withdraw tokens from Compound?

Navigate to your dashboard, select the cToken, click “Withdraw,” and confirm the transaction. Interest is automatically added to your balance.

Are deposited tokens insured?

No. Unlike banks, DeFi lacks FDIC insurance. Use audited protocols and diversify across platforms to mitigate risk.

Can I lose money depositing on Compound?

Principal loss is rare but possible via smart contract hacks or if collateral liquidations fail during extreme volatility. Stick to blue-chip tokens to reduce exposure.

How often is interest paid?

Interest compounds every Ethereum block (~12 seconds). Your cToken balance increases continuously, visible in your wallet.