Decentralized finance (DeFi) protocol Element has completed a seed round to develop higher fixed-rate yields than can be found on existing platforms.
Element Finance detailed its funding round and plans for bringing liquidity to fixed-rate income into the DeFi ecosystem.
The seed round was led by Andreessen Horowitz and Placeholder. It saw accompanying investments by SV Angel, A.Capital, Scalar Capital, and Robot Ventures. A number of industry executives also participated. These include ConsenSys founder Joseph Lubin, Compound’s Robert Leshner, Aave CEO Stani Kulechov, and Balancer co-founder Fernando Martinelli.
The team raised a total of $4.4 million that will now be channeled into the new platform.
Fixed-Rate DeFi Liquidity
The protocol aims to bring high fixed-rate yields to DeFi and maximize capital efficiency. Users will be able to purchase discounted BTC, ETH, and USDC without being locked into a fixed term.
It stated that capital efficiency is underserved in many DeFi protocols. This is because investors need to leave their assets locked in liquidity pools in order to earn yields. Additionally, removing liquidity incurs associated costs. This is true in the case of Yearn’s withdrawal fees. High gas fees also make this an expensive process.
Element Protocol essentially splits the base asset positions into two distinct separate tokens, the principal token and the yield token.
“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.”
It added that the custom curve built on Balancer V2 will drive the high fixed yield markets. This will bring liquidity to fixed yield income while minimizing slippage and fees.
There was no mention of a governance token. However, no DeFi protocol is complete without one. No launch date has yet been specified.
Yield Protocol Offering Fixed Rates
Element is not the first DeFi protocol to delve into fixed rates, however. In October 2020, BeInCrypto reported that Yield Protocol launched a new type of fixed yield token. The first of these was fyDai, which enabled fixed-term and rate borrowing and lending using the MakerDAO stablecoin.
There was also a vote on a Term Lending Module (TLM) by Maker governance for fixed-rate Dai lending.
Though slightly different from the Element model, there is room for more fixed-rate products in the fledgling financial landscape.