When finding the best opportunities in crypto, it’s vital to stay vigilant about fees. Gas fees can really add up ... and could even turn a profit opportunity negative.
So, how can you manage the fees you’ll face when navigating the crypto space? By being smarter with your money movements.
Efficient organization and utilizing certain cryptos as value transfer mechanism (VTM) can help you navigate the decentralized finance (DeFi) space to maximize your balances and minimize unnecessary spending on fees.
Chris Coney explains how to do this in further detail in our latest Sunday Special. You can watch it or continue reading for the full transcript …
Chris Coney:
Hi there, guys, and welcome to this week's edition of the Weiss Crypto Sunday Special with me, your host, Chris Coney.
Today's topic then is using crypto assets as a value transfer mechanism when investing.
Now, this whole thing was inspired by a true story. So, a few nights ago, I was sitting with a friend of mine, and he wanted to invest $3,000 into the Bumper Finance (BUMP, Unrated) token, since it was trading close to its all-time low.
Now this token, the BUMP token, I consider this to be an undiscovered crypto, since the only place you can buy it is Uniswap (UNI). Now he had a bunch [of] Tether (USDT, Unrated) on Binance, and he wanted to use $3,000 of that to buy BUMP tokens.
So, the first problem was that the average fee on the Ethereum (ETH, Tech/Adoption Grade “A”) network at the time was around $35, and he only had $26 worth of Ethereum in his MetaMask wallet.
So, we were faced with the possibility of having to buy some Ethereum with his Tether, withdraw that to the wallet to pay fees and then withdraw the Tether to the wallet so we could actually trade it on Uniswap.
Now that plan quickly fell apart when we realized that if we bought, say, $100 worth of Ethereum and then withdrew that to the wallet to pay fees, the exchange was going to charge us a $35 Ethereum transaction fee to withdraw it. And that would turn the $100 worth of Ethereum into $65 worth of Ethereum before we'd even done the swap. Then we'd be looking at another $35 Ethereum transaction fee to withdraw the $3,000 worth of Tether.
This is a nightmare — that would've been $70 in Ethereum transaction fees before we'd even done the trade, which would incur another Ethereum transaction fee when we actually did the swap.
So, what did we do? We went back to first principles.
We asked, what is the end result we're going for here? Now, BUMP was trading around 8 cents at the time. So, with $3,000 worth of Tether, we were looking to buy about 37,000 tokens.
The next question we asked was, “What's the fewest number of steps to achieve that?” Because of course, the fewer steps, the less we'll spend on fees.
Now, like with every problem, if you invest the time to precisely craft the question, the answer becomes obvious.
What we ended up doing was taking $3,100 worth of Tether and buying Ethereum with it on the centralized exchange, which was Binance. Then we withdrew all that Ethereum in one go to the wallet.
Now, transaction fees on Ethereum are only estimates because you don't know what the total fee is until the transaction's complete. And I liken this to only being able to estimate the cost of fuel for a car journey. With a car journey, until you actually get to your destination, you don't know precisely how much fuel you're going to burn. And the same goes for Ethereum since in both cases — with Ethereum transactions and the car journey — stuff happens along the way that actually affects the cost.
So when the transaction withdrawing the Ethereum from the exchange was confirmed, we only actually spent $6, so that was great. But in any case, in one step, we now had $3,000 worth of value moved into his MetaMask wallet but using Ethereum — the ETH token — as a temporary store of value.
Now, remember we actually bought $3,100 worth of a Ethereum with this Tether, so we were expecting that extra $100 to get caught by the withdrawal fee to $65. But since that withdrawal transaction only ended up costing us $6, we had $94 worth of extra — let's call it fee-paying — Ethereum added to his wallet balance.
So, let's do a quick inventory here, because the secret to this is keeping track of what's going on in your head, since it's not actually obvious from the numbers.
At this point in the process, if we just looked at his MetaMask balance, it said the only asset he had in there was $3,120 worth of Ethereum. But he and I knew mentally that balance was actually subdivided into three categories:
- The $26 worth of Ethereum that was in there in the first place,
- The $94 worth of Ethereum that we bought with the Tether and withdrew it from the exchange,
- The $3,000 worth of Ethereum that we bought with Tether and withdrew it from the exchange in the same transaction.
So now we were ready to do the Uniswap transaction, which of course was a piece of cake. We went to Uniswap, selected the “From Asset” as Ethereum, as that's the asset we wanted to swap. We selected BUMP as the “To Asset,” the asset we wanted to receive, and we clicked “Swap.”
The transaction fee on that swap was $43 worth of Ethereum. And within 30 seconds, that transaction was confirmed, and the BUMP tokens appeared in his wallet.
Mission accomplished? Yes.
One of the main points here, though, is to demonstrate how you can enhance your returns just by being a bit smarter with your money movements. $35 saved on a transaction fee is actually the best return you'll ever make, because it's like a trade with no downside risk and a guaranteed profit of $35.
I'd take that trade every day.
And those opportunities? They're there all the time. It just requires a bit of know-how, which is what I'm sharing with you here.
So, to tie this all back into the title of the episode, do you see now what I mean by using certain crypto assets as a value transfer mechanism? In this case, we simply used the ETH asset to store our $3,000 worth of value for a few minutes while we moved it to where we wanted it.
And the fact that ETH is a volatile asset doesn't really affect us here because we only held it for a short period of time — like minutes.
But don't get stuck on Ethereum here. This principle can apply to any network. Typically, the base asset of a network is mainly thought of as being the fee-paying token for network transactions. But I've just brought this other use case into the forefront, which is the idea of using base assets — like MATIC token for Polygon, the BNB token for the Binance Smart Chain, or the AVAX token for Avalanche — to hold value while you transfer it somewhere else.
So, one more hypothetical example before we close here ...
Let's say I had $5,000 worth of Tether over on the Binance Smart Chain. And let's say I wanted to move it over to the Avalanche network. If there's no bridge available directly between those two networks, then I can use this value transfer idea to accomplish it.
Here's how I can do that:
Step one, I'd deposit that $5,000 worth of USDT onto an exchange like Binance.
Step two, I would exchange that $5,000 [of USDT] for AVAX tokens.
Step three, I would withdraw those AVAX tokens to my Avalanche wallet.
And then step four, I'd swap those AVAX tokens on the Avalanche network for USDT.
Now that is a four-step process, and there may well be another way of doing that which involves fewer steps ... and therefore fewer fees. However, my point here is to give you this option when working out your best route.
If going via an exchange in this way is the only option available, then that's what it would have to be. Or if you even find that the simplest way of doing it, maybe minimizing fees isn't the most important thing. Maybe understanding how to do it or simplicity is the most important thing.
In this example, I transferred the value of my USDT into the AVAX token, and then used that as the value transfer mechanism until I swapped it back into USDT on the Avalanche network using something like SushiSwap (SUSHI). So, I think that's quite enough of that.
Let me know your views on all this by tweeting at me via the account, @ChrisConeyINT, or by emailing here.
But that's going to do it for this week's edition of the Weiss Crypto Sunday Special. Keep a close eye on your inbox for next week's episode, but until then it is me, Chris Coney saying bye, for now.