Element Finance has assured its protocol will be open, self-sustaining, and community-governed.
The decentralized finance (DeFi) market received massive traction over the last year and startups in this ecosystem and popping up fast. On Wednesday, March 31st, DeFi startup Element Finance said that it is currently building a yield-maximizing marketplace for crypto interest rates. For this, Element Finance has secured $4.4 million in a funding round led by Andreessen Horowitz. Accompanying Horowitz other big investors also include Placeholder, SV Angel, A. Capital, Robot Ventures, and Scalar Capital.
The Element Finance protocol is setting up a name for itself in the DeFi space by offering attractive high fixed rate yields. However, it also takes care of maximizing capital efficiency, creating market liquidity, and reducing user costs. Element Finance says that its users can purchase Bitcoin, Ether and the USDC stablecoin without any fixed term locking. Thus, it will facilitate swapping between the discounted asset and any other base asset.
Speaking to CoinDesk, Element Finance CEO Will Villanueva said that they are willing to gamify the fixed interest rates. Will further added that Element Finance will have a novel two token-system for improved liquidity. While the DeFi crypto lending and borrowing landscape has evolved significantly, Will finds a fundamental flaw. Although the interest rates offered are high, most DeFi protocols have a lock-in period for funds. Will sees this as more of a bug.
Element Finance Implementing the Two-Token System
As said, with new funding, DeFi protocol Element Finance is looking to solve the issue of the deposit. For this, Element shall be implementing a two-token system wherein one token represents the principal and the other token represents the interest.
“Because we split it into two positions you can sell your position at a discount so you can get more exposure to your interest,” he explained. The official announcement also notes:
“This splitting mechanism allows users to sell their principal as a fixed-rate income position, further leveraging or increasing exposure to interest without any liquidation risk”.
Will said that this setup will allow DeFi users to overcome the issue of high gas fees or other frictions. “You just have to pay for a swap – similar to Uniswap – and that’s it,” he said.
Element Finance has assured its protocol will be open, self-sustaining, and community-governed. It aims to provide financial freedom and access to other financial products.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.