How Much Do You Need to Live off DeFi? A Comparative Analysis

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Alex Lielacher

In theory, you could live entirely off DeFi earnings provided you have sufficient starting capital. Here’s how much it would cost you!

The exorbitant returns generated by yield farms and decentralized lending platforms enable crypto-savvy individuals (who are comfortable with and understand the risks involved) to earn a substantial investment income. For those living in (or moving to) emerging markets, this income could even cover living costs — provided there is enough initial capital.

In this analysis, we will delve into how much individuals would need to deposit in yield-generating DeFi protocols on Binance Smart Chain (BSC) to generate enough returns to cover living costs in seven major cities.

Crypto Changes Lives

In case you haven’t read the story of the Filipino Axie Infinity players who are able to make a living with earnings from the popular blockchain game, you should. It’s not only a wonderful tale but it also highlights how the crypto economy can change people’s lives by offering new avenues to earn an income.

In addition to get-paid-when-you-win blockchain games, freelancers across the globe are working for and earning in crypto. From writers and marketers to designers and developers, the decentralized digital economy is creating jobs and wealth for those who are forward-thinking enough to believe in the future of the new technologies stemming from this industry.

And then, there’s the booming DeFi market that is creating new avenues for individuals to earn an income in crypto.

Yield farms and autonomous lending protocols that generate 100%+ APY enable individuals to deposit digital assets to receive daily income streams in digital tokens that could — in theory — even cover living costs. That is what our analysis will focus on.

The question we are looking to answer is:

How much capital do you have to deposit in leading DeFi protocols on Binance Smart Chain to cover average living costs?

For our analysis, we have selected seven cities (that are also leading crypto hubs) to provide a broad answer to that question.

Analysis: How Much Capital-at-Risk Do You Need to Live off DeFi Earnings?

Before we jump into the results of your findings, let’s briefly touch on the main limitations of this analysis.

Limitations

The figures our results show are based on APY rates that were collected on the day the analysis was conducted. However, yields are constantly changing in the DeFi markets. As the market matures and more investors place funds into yield protocols, yields will compress.

Moreover, the **market rate of the tokens **that yields are paid in also changes, affecting actual returns.

As a result, our results only give a rough estimate of how much capital you would need to put at risk to earn enough returns to cover living costs.

Methodology

For our comparative analysis, we have taken APYs from three leading Binance Smart Chain-powered DeFi platforms; PancakeSwap, Beefy, and Cream Finance.

On PancakeSwap, we took the APY from the TWT-BNB liquidity pool, which generated 90.31% annual yield at the time of the analysis.

On Beefy, we looked at APY from the TWT-BNB LP Vault, which stood at 139.98%.

And from C.R.E.A.M., we took the Trust Wallet Token (TWT) lending yield, which came in at 19.29%.

To provide a broad overview for DeFi investors across the globe, we have selected Berlin, Hong Kong, Lagos, Manila, Nairobi, New York, and Sydney.

Data on living costs were collated from Numbeo and converted into US dollars. The analysis used the costs of living for a single person living in a one-bedroom apartment outside of the city center.

Additionally, we made the assumption of a one-off deposit at the start of a one-year period without re-investment of the generating tokens.

Our final assumption is that someone who would attempt to live off DeFi earnings would diversify their funds into all of our three chosen protocols equally. Thus, we will use a “diversified APY” to calculate how much capital-at-risk would be required to live off DeFi.

And here are our findings.

Our 83.19% “diversified APY” means that investors need to have enough money down to effectively double their investment and then some. If you are located in expensive cities like Hong Kong, New York, or Sydney, that will be quite the capital-at-risk.

However, if you are looking to spend the year in Nairobi, Kenya, or in Manila in the Philippines, the initial capital investment starts to look much more reasonable.

To cover the $8,225.88 annual living costs in Nairobi, you would have to deposit $9,888 and split it equally into our three chosen yield products at today’s rates. While that is a lot for the average Nairobian, for an American digital nomad looking to spend a year in Kenya, for example, that would likely be manageable.

The same goes for Manila, where the initial investment would amount to $13,401. This investment would provide you with returns equal to the average annual living cost.

The Risk Warning

Before you go and deposit all your hard earning money into the highest-earning DeFi protocol you can find, make sure you understand all the risks involved first.

High returns come with a high level of risk. DeFi is no different.

Attempting to “live off DeFi” is something that — while technically possible in the current DeFi market environment — incurs a substantial amount of risk, arguably too much for most individuals.

The potential loss of funds due to protocol code vulnerabilities, the risk of impermanent loss when yield farming, loss of funds due to a phishing scam, and regulatory changes that could affect the entire DeFi markets are just a few of the risks that DeFi users face.

Compressing yields as more market entrants join the foray plus ongoing market risk of earned tokens provide another hurdle for DeFi investors who are considering “going all in.”

Individuals looking to earn an (additional) income in the DeFi markets are therefore advised to only risk as much money as they can afford to lose.

The Takeaway

While it’s still early days for autonomous, yield-generating protocols, they offer a new (albeit risky) avenue to earn investment returns in the crypto markets.

While DeFi is not anywhere near “banking the unbanked” yet, the first steps have been taken to usher in a more open, inclusive global financial system that anyone with an internet connection can access.

Perhaps sooner than later, internet-savvy people around the world will be working for and getting paid from decentralized protocols as opposed to centralized companies.

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