As we continue to watch the growth of DeFi lending markets, we’ve continued to see new projects leverage strong foundations rather than trying to reinvent the wheel.

In particular one lending project – Dharma – leverages cTokens to aggregate interest on supported stablecoins like Dai and USDC with Dharma v2.

Today, Dharma announced the launch of Dharma Tokens (dTokens) – a native protocol token geared at creating a viable revenue stream for the company.

“A Dharma Token (or dToken) is an upgradeable ERC20 token with support for meta-transactions that earns interest with respect to a given stablecoin, and is backed by that stablecoin’s respective Compound cToken.”

dTokens aggregate interest exactly the same as cTokens with the major difference being that 10% of that interest goes back to Dharma. If the interest rate is 5% APY on Compound, Dharma will collect 0.5%, while users will earn 4.5% APY.

Why is this Important?

In an industry that’s largely predicated on open-source technology which does not *currently* take service fees, Dharma is making a big statement by showing that taking service fees should not be frowned upon.

As stated in the original article:

“Dharma only makes money when our users do as well. We do not sell user data. We do not monetize user transactions. Instead, we have chosen a skin-in-the-game business model, wherein Dharma only makes money when our users do as well.”

I’m personally one to think *reasonable* service fees being baked directly into smart contracts is where the industry is ultimately headed, so this announcement is a nice surprise on an otherwise largely feeless DeFi ecosystem.

Why Dharma?

One of the most immediate thoughts I had when reading this news was – if Dharma is taking 10% of interest, why would anyone use their service?

Consequently, it looks like I’m not alone:

While the answer to this question remains somewhat unclear, we can assume that Dharma will take a Coinbase-like approach towards making passive interest as accessible as possible, likely gearing the product towards a non-technical audience.

It’s interest to note that Dharma ONLY supports stablecoins, so there may be some use-case where Dharma deploys fiat onramps which would make barriers to entry lower than they are with something like Compound today.

Dharma’s CEO, Brendan confirmed this in a follow-up tweet:


If one thing is for certain, Compound isn’t *that* tough to understand (I may be largely biased here) so Dharma will definitely need to solidify it’s value proposition to justify holding dTokens over cTokens when it comes to collecting passive interest.

What to Expect

The dToken smart contracts were deployed on Tuesday, February 4th. Over the next few days, Dharma will upgrade the Dharma Smart Wallet and following a 7 day upgrade timelock period, will convert all cTokens into dTokens.

No action needs to be taken by users, and this grace period allows users to take action and withdraw funds in the event they do not want their cTokens held on Dharma converted to dTokens.

In the meantime, stay up on the conversation via the official Dharma Twitter.