Supply
In Soul Protocol, supplying means depositing assets into the protocol, providing liquidity for others to borrow. In exchange, you earn interest. This is a foundational action that allows you to benefit from passive income through interest generation, while also giving you the option to use your supplied assets as collateral for borrowing. Supplying is a critical step in maximizing your participation in the protocol.
Benefits of supplying:
Earn Interest: Supplied assets generate passive income through interest payments, making your idle assets productive.
Enable Borrowing: By activating the supplied assets as collateral, you unlock borrowing power to access additional liquidity without selling your tokens.
Risk Diversification: Supplying across different supported markets and protocols helps spread risk and optimize returns.
Liquidity Support: Your supplied assets contribute to the overall liquidity of the protocol, enabling efficient operations for all users.
Here's an example of how supplying works:
Imagine you deposit 1,000 USDC into the protocol. These assets immediately start earning interest through sTokens (sUSDC), which are ERC-20 interest-bearing tokens. When you supply 1,000 USDC, an equivalent amount of sUSDC is minted to your wallet based on the sUSDC/USDC exchange rate at that moment. Your sUSDC balance remains constant, but the exchange rate increases over time as interest accrues. This means your supplied USDC grows automatically. For example, with a 5% annual interest rate, both the exchange rate and your total USDC balance increase proportionally. Additionally, you can use part of your supplied assets (e.g., 700 USDC) as collateral to borrow other assets while still earning interest on the full amount.
Why is supplying important?
It is the entry point for accessing other protocol features, such as borrowing and collateral management.
Supplying contributes to the protocol's liquidity pool, ensuring the smooth functioning of lending and borrowing activities for all users.
It provides a dual benefit of earning passive income and enabling leverage through borrowing.
Supplying assets in Soul Protocol is the first step toward optimizing your participation in decentralized finance, allowing you to earn, borrow, and contribute to a vibrant ecosystem while maintaining full control over your funds.