Fixed Rate Savings on Element Finance

Element Finance is a decentralized protocol that allows users to buy assets (BTC, ETH, USDC, DAI) at a discounted price. The protocol allows users to create liquidity and trade these discounted assets to allow buyers to earn fixed rates. The Element protocol does not require trusted intermediaries and allows for fast and efficient trading of fixed and variable yields.

Good morning it’s wednesday which means it’s time for first look which is our unboxing series on the defined today we’re going to be taking a look at element finance which offers a fixed rate protocol for d5 and it does it in a slightly strange way which is what we’re going to take a look at today they’re going to be deploying to mainnet on june the 30th currently

It’s only available on the ghoulie test net but it’s quite fun and it took me a little while to figure out what exactly is going on and i will attempt to explain it with the help of this but first a message from our sponsors don’t let high gas costs keep you out of ethereum a balancer you can trade all you want and get most of the gas boss back in your pocket in

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Slash to find to get started and get the most out of your borrowing needs today so then element element what is element all about well elements kind of big ticket item here is a fixed rate protocol and i’ve kind of been fixated with fixed rate protocols ever since the start of the year because i’m always thinking ahead to what happens during a bear market how

Will we ride out a situation in which altcoins the the major kind of movers in the market are heading downwards and of course you you end up with things like anchor ontario which is a fixed rate of interest and then products like this element so element claims to be able to offer you the chance to buy a discounted asset say eth or usdc and then you hold it for

A period of time it then matures and you are able to redeem it for the full ticket price of that asset which sounds a little crazy huh so if we look at the front page it says four savers grow your savings you pick up uh what is called a principal token for a discounted price so in their example they say you have point eight worth of each you trade that each for

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The principal token version of ease and in this instance you’re buying one each and then you have to hold that for a period of time um in this instance it’s 90 days and at the end of 90 days you’ll be able to redeem it for one eath i was trying to figure out whether there was a good metaphor for this and i couldn’t really think of one so i just picked up a camera

Because this sort of illustrates the point quite well for me what is going on here is that there is the potential to earn interest and yield on assets and in this case it’s through urine vaults and you’ll be familiar with this through alcoholics for instance alchemix deploys capital into year and volts and then you’re able to use that interest to pay back a loan

Over time same kind of things going on here so what’s happening is you have your principal and that principle is put into a vault but in return whereas normally you would have to put the entire thing into the vault leave it there and don’t touch it with element what happens is it gets split so you have two items you have a principal token and you have a yield

Token and they are separate so with the principle token it it’s issued on the grounds that um the long the further it is away from the maturation period the cheaper it should be the more discounted it should be in relation to its face price so for someone who you know might need the funds they can opt to sell their principal token and take back a certain chunk

Of the cash in return for the benefit of having the money now similarly with the yield token the yield token basically represents the future yield of the principal but as we know yield interest can be variable so it can go up and down so you you know there may be more safety in holding the principal tokens so what this allows is it allows for people who want to

Buy a really safe product which is the principal tokens what they might decide to do is look for a principal token that is a long way away from its maturation period so right at the start of uh the 90-day period which they’ll be able to get for a very good discount and then they will buy the principal token hold it for 90 days and redeem it once that maturation

Period is over that’s what you’re paying for essentially is the opportunity cost you can’t do anything with that asset if you want to redeem it for the full face value but of course the longer you hold it the closer it gets to the price that you want and of course since you bought it at a discount in the first place if you can be patient you can still make some

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Money off it even if you decide to redeem it early similarly with the interest tokens um it’s entirely possible that you the kind of aggressive trader that you are might decide that you only want the yield you don’t care about the principal you don’t want to lock up principle in order to gain access to what could be some very pumpy exciting yield opportunities

On yen so you just buy the yield tokens so those your tokens represent the the yield that could be had on a particular asset it’s a little complicated to wrap your head around because you you kind of find yourself thinking well why is the principal trading at a discount and it’s simply this the the the natural laws of the market determine that if uh there is an

Opportunity cost involved that opportunity cost should be discounted in the market so element themselves have an amm and you can trade these assets on that amm and presumably the whole structure is designed so that that market balances itself out in the most efficient way possible uh so if we take a look at it it’s not actually on the ethereum yet that deploys

On the 30th we can go in and have a look at for instance the savings side of the market and take a look at you know what the options are here and see how it actually works so what we have here is it looks a little bit like the unisop interface but we can say we want to deposit ethereum or ustc in this instance and so if we said okay i want to deposit 1080 yes

Obviously i have insufficient balance then it will give me the maturation date which is august the 6th and it will tell me how much i would have earned at maturity which is 0.0325 each and that is it that’s how it works uh similarly we could say usdc let’s say i want to put in 10 000 usdc and on august the 6th i will have earned 104 which doesn’t sound like

Very much does it but bear in mind that this is fixed rate guaranteed it’s safe safe and that is it so there are other ways to earn on um element as well so you could say rather than saving i want to start earning so here you’re playing a different side of the market um so yeah if we look at this here we’ve got a yearn vault which has been running for uh what

Looks like a month and a half already it looks about like it’s about halfway through so we could deposit to this and gain the benefits of a month and 13 days worth of yield in this particular vault this one is mature already then there’s another one here which is the curve state eth vault as well uh that gives us an opportunity there but we can also trade so

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There’s a market for trading principal tokens and there’s a market for trading yield tokens uh but really you’d have to do a bit of homework here to determine whether these represent a good value but you know once you start freeing up assets for trading like this generally the market will figure out what the best price for them is and you can you can profit from

That so i don’t have any in my portfolio at the moment i did try and get stuck into this using the test net but i couldn’t unfortunately access any test net tokens but um what i like about this is that you can once you’ve deposited so you want to deposit eth and take out principal tokens and yield tokens as well um you are able to then stake them you’re able

To deposit them into liquidity pools and you’ll gain extra rewards for doing that as well it’s you know similar kind of mechanism we’ve seen in lots of these different uh protocols but fundamentally there is there’s a market for say people who want to play it safe and there’s a market people want to do things a little bit more riskily but i mean essentially what

We’re looking at here is a way of just taking yield and creating derivatives on top of it allowing those to be tradable and then allowing the market to do the rest of the work but if you were simply interested in a fixed rate and you want to buy ether a discount then here’s a way to do it and it looks like it is pretty straightforward i’m not going to lie it took

Me some time to round my head around how this works and why it would work and why you might want to use it but you know even if you’re just a kind of regular user and you want to get that fixed interest rate this is an interesting way to do it and because there’s also a usdc pool you know if the market’s looking a little bit you know you want a better infras you

Know for just some stable yield there’s a way to do it uh so there you go i expect us there will be more protocols like this coming onto the market pretty soon um but as always you know it feels like there’s a lot of complexity here to wrap your head around and that you know for the casual use it might be too much so hopefully we can find a way to make all of

That bit more user-friendly but uh good luck going through the documentation with a little brain like mine it was hard work but i got there in the end and i’m sure you can too i’ll see you in the next one peace you

Transcribed from video
Fixed Rate Savings on Element Finance By DeFi NFT \u0026 Web3 Insights – The Defiant