How to Deposit DAI on Compound: Beginner’s Step-by-Step Guide (2024)

What is Compound and Why Deposit DAI?

Compound is a decentralized finance (DeFi) protocol on Ethereum that lets you earn interest on crypto deposits like DAI—a stablecoin pegged to the US dollar. By depositing DAI into Compound, beginners can generate passive income through algorithmic interest rates while maintaining dollar stability. Unlike traditional banks, Compound offers higher yields (often 2%-8% APY), instant liquidity, and full control over your funds via Web3 wallets.

Prerequisites Before Depositing DAI

Prepare these essentials:

• Ethereum Wallet: MetaMask or Coinbase Wallet (set up with recovery phrase secured)
• DAI Tokens: Buy from exchanges like Coinbase or Binance
• ETH for Gas Fees: $10-$50 worth to cover transaction costs
• Web3-Enabled Browser: Chrome/Firefox with wallet extension installed

Step-by-Step: How to Deposit DAI on Compound

1. Connect Your Wallet: Go to app.compound.finance. Click “Connect Wallet” and authorize access.
2. Select DAI Market: Under “Supply Markets,” find DAI and click “Supply.”
3. Enter Deposit Amount: Type your DAI amount or click “Max.” Review the interest rate displayed.
4. Approve Transaction: Confirm the “Approve DAI” pop-up in your wallet (gas fee required).
5. Confirm Deposit: After approval, click “Supply” again and sign the final transaction.
6. Track cDAI Balance: You’ll receive cDAI tokens representing your deposit + accrued interest.

Understanding Your DAI Deposit

When you deposit DAI, Compound mints cDAI tokens to your wallet. These compound interest automatically—interest accrues every Ethereum block (~15 seconds). Key concepts:

• cDAI Tokens: Your deposit proof. Redeemable for original DAI + interest anytime.
• APY Calculation: Rates adjust based on DAI supply/demand. Check real-time rates on Compound’s dashboard.
• Withdrawing Funds: Click “Withdraw” under DAI in “Your Supplies,” enter amount, and confirm.

Risks and Safety Tips for Beginners

• Smart Contract Risk: Though audited, bugs could cause fund loss. Start with small amounts.
• Gas Fee Volatility: Ethereum network congestion increases costs. Use tools like ETH Gas Station to time transactions.
• Stablecoin De-Peg: DAI rarely fluctuates but isn’t FDIC-insured.
• Best Practices: Bookmark Compound’s official site, enable wallet security features, and never share private keys.

FAQs: Depositing DAI on Compound

• Q: Is there a minimum deposit?
  A: No minimum, but gas fees make small deposits impractical. Aim for $100+.
• Q: How often is interest paid?
  A: Continuously! Interest compounds every block, reflected in growing cDAI value.
• Q: Can I lose my DAI?
  A: Extremely unlikely if you follow steps correctly. Major risks are user error (e.g., wrong address) or catastrophic protocol failure.
• Q: Are taxes applicable?
  A: Yes. Interest earnings are taxable events in most countries. Track transactions with tools like Koinly.
• Q: What’s the difference between cDAI and DAI?
  A: DAI is the stablecoin. cDAI is a receipt token that increases in value as interest accrues.

Ready to start? Deposit DAI on Compound today to put your stablecoins to work. With this guide, you’ve mastered the basics—now earn while you learn!