How much do you need to get started with DeFi?steemCreated with Sketch.

in hive-116367 •  2 months ago 

In order to get started with DeFi, it is hard not to own some ETH. While there are many platforms/blockchains that boast that they are in DeFi, the truth remains that most the actions are on Ethereum. Hence, if you want to start growing your wealth through DeFi, the best way is still to do it on the Ethereum blockchain.

But how much ETH is required? The beauty of DeFi is that there is no minimum amount that you need to put in to get started. This is unlike traditional banking where there is a minimum balance that you must maintain if not, you might get charged fees for falling below. Hence, to answer how much ETH is required, we just have to make sure that the costs involve are justified by the projected returns. Now, lets take a look at the costs involve...



Fiat to cryptocurrencies conversion fees

I once made a post comparing the various fiat-to-cryptocurrencies exchanges operating in Singapore. If we use it as a gauge, we can see that the fees to convert from fiat-to-cryptocurrencies are at least 0.5% of the amount you put in. This is likely going to vary from country to country.

For the sake of this article, I will use as an example. The conversion fee there is 0.6% and to withdraw ETH to your own wallet it requires 0.003 ETH. So we have a variable conversion fee and a fixed withdrawal fee. I plotted them into a table and here it is.

Fees involved in converting from fiat to crypto

As you can see, the more you buy, the cheaper the fees get as a percentage of the total amount. For this table, I am using a ETH price of $240 to calculate the withdrawal fees. As you can see, if you convert just $20 (which is the minimum imposed by Binance), you are paying 4.2% of fees. But the "fees curve" starts to flatten as you convert more at one go.

Note that this is just an illustration for you to consider. You have to do your own calculation depending on where you are from and the fees required for you to convert from fiat to ETH. For me, I will want to minimize the percentage fees as much as possible. Understand that when you put your cryptocurrencies into DeFi, it is usually to earn an interest or some other forms of returns and these returns on investment should be denominated in percentages. Basically, the more you save on the percentage fee, the faster you can be profitable.

Gas, Gas, Gas...

The next bulk of DeFi costs are the gas fees that you need to pay when you interact with DeFi dApps on the Ethereum blockchain. Gas fees have been quite elevated recently and that is putting many people off. For example, it now costs about $1-$2 worth of Ether to deposit cryptocurrencies into Aave, a decentralized lending platform.

Gas fees required to deposit funds to Aave

Let's now assume we take the average of $1.5, how will the table from the previous section look like?

Fees required to convert fiat to crypto and deposit to Aave

As you can see, the percentage fees have drastically increase if you just converted $20. But wait, that is not all. If we simply put our ETH into the platform, it is not going to yield much interests. In fact, it is just 0.13%. Of course, this is paid in kind and the actual returns in fiat terms may be higher if ETH price increases. But for simplicity sake, let's assume that you do not want to risk losing value in fiat terms. Thus, you will want to convert ETH into a stablecoin, such as TUSD, which gets an 4.1% annualized interest. Highest among the stablecoins.

Aave interest rates

How much does it cost to swap from ETH to TUSD in a decentralized manner? Let's take a look at KyberSwap, a dApp for you to convert between tokens. It may cost up to 0.022 Ether, which is about $5. Note that the screenshot is the maximum fee, it is usually slightly lower. But in this case, I will say the fees will still be at least $3.5.

Fees required to swap ETH to TUSD on KyberSwap

How does the table look like now?

Fees required to start earning interest on a stablecoin

Once you did your research and have a similar table like this, you can then make an informed decision as to whether DeFi fits your current investment strategy.

Argent Wallet

If you are starting to get put off by the fees required to meddle with DeFi, then perhaps the Argent wallet might be able to change your mind. Why? Because the wallet pays for all your gas fees, at least for now. This means that the previous table will look as such if you use Argent wallet,

Savings you get from Argent Wallet

There are quite a number of dApps available on Argent and I must say this is probably the cheapest way to get yourself started with DeFi.

dApps supported on Argent


I hope this article helps you understand the various costs that you might incur when putting your money into DeFi. Your returns and how fast you become profitable depends on how much you have paid for the fees. For example, if you used Argent wallet and you will need more than a year to breakeven as the interest rate on TUSD is only 4.1% and the fees you paid are 4.2%. On the other hand, if you put in $1,000, you can probably breakeven after 2-3 months. Think about it and do some research. Let me know how much it cost to convert fiat to ETH in your country.

I hope this is a good first post to get you interested in DeFi. If you like such articles, do subscribe to DeFi Campus community.

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@tipu curate

Upvoted 👌 (Mana: 5/10)

Thanks! 👍

Fully Upvoted.

We are glad to have you there in the Hive Crypto Blogging Sphere.

Cheers to you @culgin !

Thank you very much!

Interesting, I'm looking to get into investing my crypto more, I've started out with $800 worth in a BlockFi account, it was an easy start, and it's nice to see that money trickling in.

I might have to explore other options such as this.

You've confirmed my rule of thumb with crypto: messing around with sums of <$500 isn't really worth it, given the fees involved. They tumble drastically once you hit that figure according to your chart.

Come to think of that an exception to that rule is Hive vests, very low fees comparatively for low amounts.

Posted Using LeoFinance

I am using Blockfi as well. But since the topic is DeFi, I thought I should start with only decentralized options.

And yes, Hive probably has a lower barrier to entry. But most people still prefers to grow their fiat money. HBD in this case isn't such a good option since it often goes off the peg and you can't really earn interests off it

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