Interest Bearing Tokens Explained
Basic Concept:
Interest-bearing tokens are a type of cryptocurrency or digital asset that earns rewards for its holder. They are typically created in DeFi (Decentralized Finance) platforms and represent a stake in a particular asset or pool of assets.
Mechanism:
Users who deposit their funds into a DeFi protocol receive interest-bearing tokens in return. These tokens represent the user's share in the pool and accrue rewards over time. The rewards can result from lending activities, staking, liquidity provision, or other yield-generating activities within the DeFi ecosystem.
Redemption:
Users can redeem these tokens at any time to receive their original deposit and the accrued rewards. The value of these tokens increases over time as users earn rewards, which is reflected in their market price or redemption value.
Interest Bearing Tokens at Opulous
OVAULT is an interest-bearing token. As a participant, you deposit your USDC into the liquid staking pool and receive OVAULT in return, which will then start to accrue rewards in the token's value.
With each passing repayment cycle, the market value of the tokens will increase as rewards are generated through the real-world function of the underlying assets (for example, the earnings performance of the music catalog in the case of OVAULT), and baked into the token's value.
As these repayment cycles progress, the token's value will continue to increase because more of the rewards get baked in. When you decide to redeem, you get USDC back at the most recently updated exchange rate of the respective token, receiving both your original deposit and the accrued rewards.
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