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I am lazy, are you? Whether it's worth the convenience, it all depends on what's worth it for you.
A blockchain transaction takes a couple of steps. A popular transaction is providing liquidity in a liquidity pool, and staking it for some yield. How many transactions does that take? Let's count (this is just an overview, do your own research for the best accuracy).
Assuming you already have 100 USDC to start with on your desired blockchain...
Providing liquidity
- Approving the platform to spend your 100 USDC
- Swapping half of USDC for another token (let's call this Token A)
- Providing liquidity (pairing up USDC + Token A)
Staking liquidity
- Staking your liquidity pair in the desired pool to obtain yield
Collecting reward
- On a hourly/daily/weekly (whichever work for you) basis, collecting reward token
Compounding reward
- Approving the platform to spend your reward token
- Swapping half of your reward for USDC
- Swapping half of your reward for Token A
- Providing liquidity
- Staking your liquidity pair
4 key stages as laid out above, with each bullet point being a transaction that will cost you some gas fee. If you're on a cheap blockchain, say Polygon, you can afford to do this for a small capital of around USD 100. If you're on a more expensive blockchain, say Ethereum, you can wipe out your capital just trying to carry out these transactions.
(On a side note, if you wonder why do we have to compound - can't we just collect and you know, enjoy the reward? There's 2 terms you'll usually come across - APY and APR. One stands for the compounded ield while the other stands for the annual ate, and they differ wildly, especially when it's a high APR to begin with. This is because you end up collecting yield on your reward as well, so like rewards on steroid if this is your lingo).
What does an auto-compounder do then? They do the "Collecting reward" and "Compounding reward", over what the platform calls an optimal compounding period. What it means is that they probably have some algorithm on calculating the best no. of hours to compound (or maybe they don't). The cost of this convenience depends on a couple of factors, mainly the capital you are using, the fees you are paying, and the expected gas fee on the blockchain. End of the day, it's a trade off between doing it yourself by paying all the gas fees + time spent (how much your time is worth, that's really a question only you can answer) VS staking your liquidity pair on the auto-compounder and let it run.
A couple of more renowned multi-chain auto-compounders are Beefy Finance and Autofarm. Individual blockchains also have their own native auto-compounders. Key things to look out in terms of cost are the fees these auto-compounders charge for doing the work for you, and any deposit and withdrawal fee for staking on their platform. In terms of risk, there's an additional layer of risk introduced by using another platform, not forgetting impermanence loss in a liquidity pair/pool position.
Everyone has their own preference. If you have no idea what I'm taking about, have fun exploring the technical terms. If you're a pure DIY person, I'm happy for you. If you're lazy like me, we probably should buck up a bit haha. These are not financial advice, do your own research, and let's learn together as a community!
Image credit: beefy.finance (cute isn't it)
*Thanks for reading so far, to throw in an experience of mine - I am a user of Beefy (and hence the image), and I did have a scare before when the website was unreachable on a random day. Are my funds gone!? Why is the web still down!? We all know a day in crypto feels like a thousand years in real life. Long story short, it was a technical issue on the display of the webpage which caused many global users unable to reach the website but the funds were still compounding (platform was working file) as the issue went on. This is just to illustrate that whatever you do, it comes with a risk. Stay safe guys!
