How to Deposit DAI on Compound: Beginner’s Guide to Earning Interest

## Introduction
Depositing DAI on Compound Finance unlocks opportunities to earn passive income through decentralized finance (DeFi). As a stablecoin pegged to the US dollar, DAI offers stability while Compound’s algorithmic interest rates provide competitive yields. This beginner-friendly guide walks you through depositing DAI on Compound step by step—no prior DeFi experience required.

## What is Compound Finance?
Compound is a leading DeFi protocol built on Ethereum that enables users to lend and borrow cryptocurrencies. Unlike traditional banks, Compound operates autonomously through smart contracts, automatically adjusting interest rates based on supply and demand. When you deposit assets like DAI, you earn interest in real-time while contributing liquidity to the ecosystem.

## Why Deposit DAI on Compound?
– **Earn Passive Income**: Generate yield on stable assets (currently 3-8% APY)
– **Stability**: DAI maintains a 1:1 USD peg, minimizing volatility risk
– **Liquidity**: Withdraw funds anytime without lock-up periods
– **Decentralization**: No intermediaries or credit checks required
– **Compound Tokens**: Earn COMP governance tokens as additional rewards

## Prerequisites for Depositing DAI
Before starting, ensure you have:
1. **Ethereum Wallet**: MetaMask (browser extension/mobile app recommended)
2. **ETH for Gas Fees**: $10-$50 worth to cover transaction costs
3. **DAI Tokens**: Purchase from exchanges like Coinbase or Binance
4. **Web3-Enabled Browser**: Chrome, Brave, or Firefox with MetaMask installed

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

### Step 1: Connect Your Wallet
Visit [app.compound.finance](https://app.compound.finance) and click “Connect Wallet” in the top-right. Select MetaMask and approve the connection.

### Step 2: Navigate to DAI Market
In the “Supply Markets” section, locate DAI and click “Supply”.

### Step 3: Approve DAI Spending
A pop-up will request permission to access your DAI. Confirm this “Approve” transaction in MetaMask (gas fee required).

### Step 4: Deposit DAI
1. Enter the amount of DAI to deposit
2. Review transaction details (interest rate, collateralization)
3. Click “Supply” and confirm in MetaMask

### Step 5: Verify Your Deposit
Check your “Supply Balance” on Compound’s dashboard. You’ll now hold cDAI (Compound DAI) tokens representing your deposit + accrued interest.

## Understanding Your DAI Deposit
– **cDAI Tokens**: Receive these upon deposit; they automatically compound interest every Ethereum block (~15 seconds)
– **Interest Calculation**: Rates update dynamically based on market activity (view real-time APY on Compound)
– **Withdrawals**: Redeem cDAI anytime for original DAI + earned interest
– **COMP Rewards**: Earn protocol governance tokens distributed weekly based on your share of the market

## Key Risks to Consider
– **Smart Contract Vulnerabilities**: Though audited, DeFi protocols carry inherent code risks
– **Gas Fees**: Ethereum network congestion can make transactions expensive
– **Interest Rate Volatility**: APY fluctuates with market conditions
– **Stablecoin De-Peg Risk**: While rare, DAI could temporarily lose its USD peg

## Maximizing Your Compound Experience
– **Monitor Rates**: Use tools like [DeFi Pulse](https://defipulse.com/) to track best yields
– **Reinvest Interest**: Periodically deposit earned interest to accelerate compounding
– **Diversify**: Consider supplying multiple stablecoins (USDC, USDT) alongside DAI
– **Security**: Use hardware wallets for large deposits and enable 2FA

## Frequently Asked Questions (FAQ)

### What’s the minimum DAI deposit on Compound?
There’s no minimum! You can deposit any amount, but ensure you have enough ETH to cover gas fees (typically $3-$30 per transaction).

### How often is interest paid on Compound?
Interest compounds every Ethereum block (~15 seconds) and is reflected in your growing cDAI balance. You earn continuously with no payout delays.

### Can I lose money depositing DAI on Compound?
While DAI itself is stable, potential risks include smart contract exploits or extreme network congestion causing failed transactions. Historically, Compound has maintained strong security.

### Is my deposited DAI insured?
No. Unlike bank deposits, Compound has no FDIC insurance. Users bear full responsibility for asset security.

### How do I withdraw my DAI from Compound?
1. Go to Compound’s dashboard
2. Under “Your Supplies”, click DAI
3. Select “Withdraw” and enter amount
4. Confirm transaction in MetaMask

## Conclusion
Depositing DAI on Compound empowers beginners to enter DeFi with minimal risk. By following this guide, you’ve taken the first step toward earning passive crypto income. Start small, monitor your cDAI growth, and explore other DeFi opportunities as you gain confidence. Remember to prioritize security and stay updated on protocol changes through Compound’s official channels.