DeFi Craze - Why do I think ETH based DeFi apps are not for me (all noobs)?

By rmsadkri | Personal Musings | 22 Dec 2020


For me, it was simple. If I cannot justify the gas fees I am paying for the specific transaction to happen, that investment is not for me. I will lay out why I think ETH based DeFi may not be a suitable option if you are not investing a significant chunk (more than 2000 $ in total?), not in the game early enough and do not understand the market properly.

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Photo by André François McKenzie on Unsplash

WLeo Liquidity Pool

I started my ETH DeFi experiments back in September/October 2020 when Uniswap was booming like crazy. The Defi bug caught me when I decided to join the Liquidity Pool for the first version of Wrapped Leo and Ethereum (Wleo+ETH). The Leo hype was real and I wanted to contribute to the overall good of the ecosystem. And, I also wanted to learn more about this new DeFi structure everyone was talking about while being helpful to the community.

My initial investment was the bare minimum of 200$ in total ($100 ETH+$100 Wleo). I paid a lot in gas fees as that was the week when the Uniswap token was launched and almost everyone was trying to collect those tokens. Thinking back, I should have waited for a week or two but I was so determined to be in the Wleo pool I went ahead. Unfortunately, the infamous hack happened and I had to take out my LP tokens and had to give up the Wleo gains. In the end, I was left with less ETH and the same amount of Wleo I invested. I did not benefit from that investment.

ETH-USDT Investment

Because I was confident with my ability to navigate the DeFi hype, I decided to provide liquidity to the Uniswap pair. The investment return would be on Uni. I invested 220 USD in total. After a month of investment I had $246 in total asset value and farmed 2 Uni (7 $ approx.). The gain of 26$ was due to the ETH price appreciation.

KOINOS mining

As it was discussed on Leofinance, I also managed to spend some ETH on mining. After the initial hype died, the mining was not significant in the laptop that I was using. However, the value of the coin that I mined (3 $) is significantly lower than the gas fees I paid on ETH - around 30$.

Overall, all my Defi investments and the mining experiment did not turn out to be beneficial.

Why?

ETH gas fees

Of my total investment of 500 $, I paid 100 $ on ETH gas fees. It shows how significant is ETH gas fee when it comes to ETH transactions. And, that’s the reason I think users need to understand the impact ETH gas fees can have in their investment that is of less value.

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Selection of Investment Pairs

I was not well aware of the investment pairs available in the DeFi space. There are so many options with a variety of permutations and combinations. You should have your skin in the game to know enough about what's happening in the market. Selecting pairs that will give you high APY is risky and the less riskier (stable coins) pairs do not have high APY. So, it’s a balance between being risky and the potential profit. I would rather select a pair that avoids impermanent loss as much as possible.

The profit I made from the ETH-USDT pair was due to the price appreciation. If there was no price appreciation, I would be on net negative due to the impermanent loss.

Timing

I was not early enough and with full power to mine Koinos. With the equipment I have and with the time I was in, I was bound to have fewer coins. And, I also did not know enough about the coin.

Finally, it’s also about how much research you have done on the market, available tools and options available. Reading available resources and taking enough time to understand what you are dealing with are two best ways to avoid loss. That is why it's my personal opinion that ETH based DeFi apps are not for all. Do your research before chasing those high returns.

This post was first published on LeoFinance Beta

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rmsadkri
rmsadkri

Part time crypto


Personal Musings
Personal Musings

My random babbling and musings. Anything under the sun. It could be anything from sports rant to crypto frustration. Bear with me If i start posting politics and discuss how chaotic this universe is.

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