Thread by @shivsakhuja

Even if you’re farming on chains with low gas fees, transaction costs can eat into your returns significantly.

Transaction costs are more than just gas fees.

Here's an explanation, and some ideas on how to mitigate #DeFi transaction costs when apeing… 🦍 👇

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Transaction costs includes:
• Slippage (price impact from swapping)
• Gas fees
• Bridging costs
• Deposit & Withdrawal fees
• Liquidation fees

You should consider all of these when deciding to make a move 😬

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1. Slippage 🍃

This is the price impact from swapping a token for another.

Slippage is higher when there's low liquidity.

Because #DeFi is so young, slippage is very common, especially when:

• Swapping on newer chains
• Swapping lesser known coins

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Here's how you can account for, and mitigate slippage:
• Check the pool's TVL
• Check the price impact
• Shop around on different DEXes
• Use a DEX aggregator.

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As an example, if I was to swap $10k $DAI for $USDC:

• On @SpookySwap, I would receive $9,950 (0.5% loss)

• On @OpenOceanGlobal, I would receive $9,998.66 (0.013% loss)

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Losing 0.5% on a $10k trade might not sound like a lot, but this is a stable swap for 2 highly liquid stablecoins. Slippage is much worse for smaller coins with lower liquidity.

If you're making large transactions ($1000s or more), I'd highly recommend using an aggregator.

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Some popular DEX aggregators include:
• @1inch
• @matchaxyz
• @OpenOceanGlobal
• @JupiterExchange ($SOL)

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2. Gas fees

Sadly, you already know about this. :(

Remember that gas fees have to be paid for everything: approvals, bridging, deposits, withdrawals, providing liquidity, harvesting rewards, sending coins, ...

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To mitigate the impact of gas fees:

• Use chains with low gas fees ($AVAX, $FTM, $BSC, etc)

• Adjust harvesting plans based on gas fees.

• Use compoundornot.com to calculate the optimal harvesting period

...👇

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• Make sure your investments are worth it even with gas costs. This might mean having a minimum position size if you're on the $ETH network.

• Transact at times with lower gas fees. etherscan.io/gastracker shows you current gas prices. So do @zapper_fi and @DeBankDeFi.

🤑

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As an example, it wouldn't make much sense to be rotating between high-APR farms weekly with $1,000 on the ETH network, as you could lose $50-$200 per move in gas fees. 😟

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3. Bridging Costs 🌉

Bridging assets from one chain to another can also get expensive. Many chains will charge 0.1-0.5%+ to bridge + gas fees.

I wrote a guide on various methods to bridge between different chains:

https://twitter.com/shivsakhuja/status/1481496972435488769?s=20

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If you're serious about #DeFi yield farming, you need to get comfortable with bridging assets between chains. 👨‍🌾

I recommend taking some time to explore and experiment with various bridges, while noting the cost of bridging between various chains.

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4. Deposit and Withdrawal Fees

Many yield farms will have a deposit and / or withdrawal fee. Unfortunately, this isn't always transparently displayed or easy to find. 🤬

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As an example, if a farm has a 0.5% deposit fee and a 0.5% withdrawal fee, it will take 15 days @ 25% APR just to recover your deposit & withdrawal fees.

And that doesn't even account for other transaction costs, or APR changing.

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To work around this:

• Look actively for deposit / withdrawal fees. Many farms don't actually have one, but you might have to poke around the farm page and docs to figure this out.

• If it does have deposit / withdraw fees, then factor that into your calculations.

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This is especially important for low-TVL farms where APR might decline quickly, and you might need to rotate your funds soon.

• Some farms / yield aggregators like @beefyfinance have the deposit / withdraw fees listed very transparently.

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5. Liquidation Fees

This is only relevant if borrowing funds on a #DeFi protocol.

When you borrow funds in #DeFi, you provide collateral that can be liquidated if your LTV exceeds the protocol's limit.

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But liquidation often comes with an additional fee tacked on by the protocol. This can be quite high (10-15%).

To mitigate this:

• Be VERY careful with borrowing / leverage.

• Keep your LTV low.

...👇

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• Monitor borrowing positions regularly. If things are looking dicey, then protect yourself against liquidation by either adding more collateral, or repaying part or all of the loan.

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Hope you find these #DeFi tips & tricks valuable..

If you do, I'd really appreciate a ❤️ / RT ♻️ / follow.

I write about #DeFi every day explaining concepts, projects and strategies through threads 🧵 and animated explainer videos... 📽

https://twitter.com/shivsakhuja/status/1470898910218440708?s=20