Are you AAVEing a laugh?
When good ideas meet high fees.
This article is aimed at anyone with AAVE crypto coin and who is considering deposits and staking. The most important word you need to remember is this: FEES.
I had played with Bitcoin and other crypto back in 2013. My start was mining on NVidia and AMD cards, one in each of two separate PCs. I tried solo mining and pools and I tested different mining apps to squeeze every possible hash from my computers. After a while I stepped into ASIC mining and picked up a couple of Prospero X1s which ran using Android, connected via WiFi and sat happily in the corner of my apartment making barely a sound.
But the novelty did not last. Everyone and their dog got into mining Bitcoin. Pools had increasingly huge mining power. My X1s slowly failed and this gear did not come with much in the way of warranties. I eventually binned the hardware and parked my meagre Bitcoin somewhere safe for a rainy day.
That day came late in 2020 when prices went crazy. I plonked my previously mined 0.49 BTC onto Kraken exchange and began meddling. One now not-so-great idea was to sell BTC high and buy it back low which worked several times only for that Elon Musk chap to flap his gums. The price went way up and — instead of buying back in — I looked for possible gains elsewhere. Step forward AAVE.
AAVE seemed to have a bright future and I liked the idea of its lending system. I picked up some AAVE on Kraken exchange not too far from its eventual top. I decided to experiment with staking and deposits and for this I needed to move off Kraken into AAVE land proper.
There was a small cost moving from Kraken to an AAVE wallet: 0.0119 AAVE taken by Kraken per withdrawal. I created a wallet using Metamask on my Android phone and the AAVE from Kraken arrived pretty fast.
An AAVE wallet is not much use by itself. You need to link it to the web AAVE app. I did that through the Metamask browser and was ready to review the various options. I think it took less than 10 minutes to have AAVE off the exchange and into a wallet that app.aave.com could see.
Sadly, this is where it began to get expensive. AAVE runs on top of the Ethereum blockchain and transactions are subject to ETH network fees. The AAVE design requires a number of transactions and each has a network fee. I do not recall reading the extensive list of actions points with fees and I was about to be educated fast and hard.
I tackled staking first. AAVE is paid out to stakers at a fixed rate of around 6% APR and it has two downsides. The first is that your AAVE is locked away and you need to request the stake to be unlocked which takes 10 days and there is an associated network fee which at the time was about USD 23. The second downside is that up to 30% of the staked pool is used to compensate if there is a “shortfall event”. You earn an incentive with the possibility of contributing to pay-outs if there is a funding issue.
I liked staking as an idea because I could park some AAVE in the staking system and collect a set rate while supporting AAVE in case there was one of these events.
This is where the first of the Ethereum network fees was required: moving 1 AAVE from my wallet to the staking pool. Some of the AAVE operations need an additional one-time approval transaction and this was the first. The network fee for the approval was the equivalent of USD 11 and after that I needed the proper staking transaction which cost USD 85 in network fees.
My 1 AAVE had a value of USD ~440 at the time so I effectively needed to spend 20% of that again to transfer from my AAVE wallet to the staking pool. Ok, well this is an education right? So I staked my 1 AAVE after buying some ETH to complete the transactions.
I still had 4-ish AAVE in my AAVE wallet and for this I wanted to review the deposit system. AAVE deposits bear no interest but you can swap AAVE to different tokens such as DAI and USDT and those can pay considerable interest. First I had to transfer AAVE from my wallet to the AAVE deposit system which required a one-time approval with network fee — USD 11 equivalent — and the actual deposit transaction which was another USD 69 in network fees. I needed more ETH for this so I bought it and transferred it from Kraken to my ETH wallet in Metamask and deposited my AAVE.
I considered swapping my AAVE to DAI and USDT and here is where the ETH cost went crazy: I was casually quoted USD 350 to 400 for network fees on top of the 0.2% fee taken from the AAVE being swapped.
I was not impressed! For me this was an insane cost simply to convert from AAVE to this or that other token. The swap operation takes 0.2% of your AAVE anyway but on top of that I was being asked to spend almost as much as 1 AAVE purely on a fee that did not benefit me nor AAVE nor the tokens I was looking to swap to. This USD 350–400 charge was simply ETH to make the swap happen.
This network fee size was not uncommon. I checked a deposit with my tiny remaining 0.00097 ETH balance (about USD 1.68) and was asked to pay a USD 202 network fee. I did not continue with that.
At this point I should have moved on with new knowledge and experience of how ETH-based systems actually work (which is expensively) but instead I boldly decided to go all-in with staking. And here comes the next network fee: once your AAVE is in the deposit system you cannot stake it. You need to pull out the AAVE from the deposit system and into your wallet (around USD 75 network fee) and then stake it (which was another USD 75 network fee). I had to buy more ETH to make this happen.
But now I have AAVE slowly coming in from the staking system right? Well yes: there is a nice button to view the incentive and take it but there is an ETH network fee for that. My staking incentive of 0.00069 AAVE (USD ~26 cents) would cost me a USD 331 to claim.
With a reported incentive average of USD 9.64 per month I would need to stake for 35 months to be able to cover the cost of claiming my incentive and be in profit at the end of the transaction. And I noticed the network fee changed each time I cancelled and pressed Claim again: USD 456; USD 512; USD 502; and to be fair there was a low-ball figure of USD 252. A user not only has to contend with fees but also has to time when they take action!
I should point out that after staring at fee popups for some time I noticed some of the text was not like the others. It is possible to edit the network fee using either a simple take-your-pick option or an advanced fee edit screen. You could opt for a slightly-cheaper-but-possibly-slow-to-action operation or choose a faster-but-even-more-expensive-than-it-is-already-is operation.
These examples for claiming staking incentive are post Feb 22nd price correction.
I guess I will have an ETH cost to actually extract AAVE from the staking system to my wallet once the cool-down has passed if I go ahead with that. There is a two day window to extract funds after the cool-down period has ended and if this expires the AAVE remains staking and you need to make a new request with new 10-day cool down period (plus new network fee). There will most likely be an AAVE fee to move from wallet back to the exchange.
I am not sure I will actually take the stake out of the pool but I wanted to see how the process worked. And given the sizeable slap AAVE took during the Feb 22nd price correction I am minded to leave the stake as it is. A shortfall event may change my mind.
The constant stream of network fees to perform the most mundane operations makes regular use of AAVE a non-starter for me. I will admit to feeling burned (and a good friend was probably correct to call me a hater) but I can’t justify spending hundreds of dollars pushing some binary data from one place to another. ETH network fees make the interest rates from staking or deposits almost irrelevant.
A price of USD 2,000 per ETH was celebrated by many but it was crippling any system that was subject to the ETH fees. The cost dropped a fair amount after the Feb 22nd market correction but I do not know how long fees will remain at the current level before bouncing back up. Post correction, I was quoted USD 73 to deposit that tiny ETH amount compared to 202 the previous day. The network fee to claim my staking incentive was also much reduced at USD 76 compared to the 252–519 range the previous day.
Talk of sharding, Loopring, Polygon (Matic) are all very well but the real cost of using Ethereum as a network right now is currently a blocker for me to regularly use or even dabble a bit more in AAVE. I am still interested in the deposit/swap system but the ETH network fees — and needing to buy ETH and move that around — made each step feel like I was being mugged. The Ethereum network might one day be a fancy, fast, cheap thing but currently it is just an expensive thing and for AAVE it is an expensive blocking thing.
I hope this was useful to you — regardless of your financial situation and position on fees — if you are considering AAVE or other systems that depend on the Ethereum network. I would love to try the deposit/swapping system in depth but for that I will need more ETH. Feel free to donate — subject to network fees of course!
ETH 0xa260672B6dA94ee9f10E228d131a99A8c9E37E67
After writing this I stored it in my B for Bile folder. Although I wanted my story to be informative I was slightly concerned I would come across as bitter and cheap (which — cards on the table — isn’t that far from the truth). I also wish I had taken more screenshots.
It was then that I noticed the following articles on the WWW. Given Ethereum fees seem to be mentioned here and there I decided to post my article anyway because — bitter and cheap or not (though I am) — I think letting others know about ETH fees with AAVE might be helpful. Happy further-reading!
High fees: http://ambcrypto.com/the-ethereum-conundrum-how-long-will-users-bear-the-high-transaction-fees/
Tech, fees: http://cryptonews.com/news/ethereum-miners-are-likely-to-accept-eip-1559-activation-ana-9322.htm
Miners, fees: http://ambcrypto.com/ethereum-heres-buterins-take-on-the-prospect-of-miners-leaving/
A hint of fees: http://cryptodaily.co.uk/2021/01/Total-Value-Locked-in-DeFi-about-to-double
Full disclosure: I am not affiliated with or employed by anyone mentioned in this story including AAVE, Kraken, Ethereum, Metamask or any of the news sites.
