Hey Edge readers,
Gas fees are the tolls on your DeFi journey. In busy lanes like on Ethereum, these fees can quickly escalate from minor charges to significant sums, directly affecting your investment returns. Smart investors strategize their transactions to optimize returns. Let's navigate these costs together and keep your portfolio in the green.
Here's what we're covering this week:
- How gas fees impact your DeFi portfolio ⛽️
Save on fees and optimize returns with Exponential.
- Airdrops galore 🪂
ENA and W airdrops, Maker controversy, and more.
Stay sharp. 🫡
– The Exponential team
How gas fees impact your DeFi portfolio
Gas fees represent the cost of doing business on blockchains. These fees may seem minor, but over time, they can have a significant impact on your investment portfolio. Transacting on more secure blockchains like Ethereum can make or break your DeFi investments. As a DeFi investor, it’s important to watch out for these costs and time your moves wisely.
Gas costs for DeFi users
The DeFi sector accounts for about 60% of all gas consumed on Ethereum. Protocols like Uniswap and Curve demand hefty gas to use—but how does this cost impact you?
Let's look at the latest on-chain figures. The average gas spent in March was $7.3M across ~99K users. This equates to about $74 spent per user to transact on the Ethereum mainnet. These fees are highly volatile and depend on overall network activity on mainnet. Gas costs have risen in recent months as the bull market has attracted more users, and thus more DeFi activity.
How Exponential helps manage gas fees
Consider two DeFi investors, Alice and Bob, both starting with a $10K initial investment.
- Alice is a traditional on-chain investor 🥸
- Bob is an Exponential investor 😎
For simplicity, we’ll assume the average gas cost on mainnet is $50 per transaction (average cost so far in 2024 is $55/user) and that it takes two transactions to enter a pool (one swap, one deposit). Compare that to Exponential, which only charges 20bps or 0.2% to enter any pool, regardless of the number of intermediate steps.
Alice wishes to maximize her returns by reinvesting her yield. With gas fees on mainnet skyrocketing, she's not just battling market volatility, but also the gas fees eating into her profits. For Alice, each transaction costs her gas. Assuming at least two transactions are needed to auto-compound monthly, she incurs costs of $100 per month. Over a year, that's a hefty $1,300 just in gas fees!
In contrast, Bob uses Exponential as his go-to platform for DeFi investments. He avoids costly gas fees as Exponential only charges one simple fee to enter any pool. He also doesn’t have to worry about claiming his fees/rewards and reinvesting it each month. It’s just an additional 20bps fee (on the reinvested amount) to auto-compound back into the position monthly. For Bob, this represents only an annual cost of $24!
The following chart compares the DeFi portfolios for Alice and Bob over a year, taking into account the impact of fees.
By month 12, the additional fees incurred by Alice reduce her portfolio value by >$1,200 compared to Bob. Because Bob chose to use Exponential with its low fees, his final portfolio was about 10% larger than Alice’s final portfolio. Over a longer time frame, this difference only becomes more stark.
Notably, when we add a third user, Charlie, who only transacts on Layer 2s for cheaper gas fees, we don’t find a major difference between Bob and Charlie. Charlie is still slightly better off using Layer 2s but it is only a very minor 0.2% savings. Bob essentially gets the cheapness of a Layer 2 blockchain but with access to lower-risk, more liquid opportunities on the Ethereum mainnet.
Conclusion
It's not just about choosing the right investments in DeFi—transaction costs need to be factored in as well. Exponential's investment platform not only simplifies the investing process but also shields you from the volatility of gas fees. As the bull market charges on, remember that your returns are a function of both market performance and operational efficiency. The less you bleed out in fees, the healthier your portfolio returns.
Join Bob in the smart investors' circle—start earning with Exponential today.
Dive into our curated selection of low-to-moderate-risk DeFi pools on mainnet and watch your investments grow:
- Gearbox ETH Lending - 25% APY
- Across BTC Bridging - 5% APY
- Maker DAI Fee Sharing - 12% APY
- Yearn Tricrypto Market Making - 14% APY
In the news
- VanEck expects future usage of Layer 2s to drive $1T valuation by 2030 - Read
- Ripple to launch USD stablecoin to compete with Circle and Tether - Read
- Ethena launches new airdrop campaign following token launch - Read
- Wormhole opens airdrop claims for its governance token - Read
- Pendle TVL approaches $4B on airdrop farming craze - Read
- Community-focused Layer 3 DEGEN chain is stirring interest in the memecoin community - Read