The platform supplies demand for fixed income in DeFi and enables sophisticated users to repurpose capital locked in vaults while retaining their APY.
For those who have good knowledge about the digital asset space, earning fixed income in crypto is not a new thing as they have been acquainted with a few platforms which give fixed income in crypto. Element Finance is one of them which has become a leading fixed rate marketplace as it introduces a trustless and permission-less marketplace for a number of assets. So, how does Element work, and how is it changing the DeFi space? Let’s know.
Element’s markets hold custom balancer pools to trade the yield on certain whitelisted yearn vaults. These vaults include base assets such as DAI and USDC including some like stETH, MIM-3POOL and Curve’s TriCrypto. Users can utilize Element Finance’s potential in a number of ways, the most simplest one being buying assets at fixed rates via the Element dAPP. These principal tokens represent a fixed rate earned over the stated term, as the buying guarantees the future rights to these assets at a discount.
Element also allows users to mint principal and yield tokens from supported underlying assets. Minting these tokens allows users to take one of these variable rate yearn vault positions and split the principal from the yield, leaving the user with two tokens.The PT token can be redeemed at face value at the end of the term. The YT tokens are redeemable for the interest accrued over the term, thus representing a tokenized variable rate.
This splitting of yield from the principal generates greater capital efficiency when speculating on variable rates. Users who want to speculate on increases in the variable rate can mint the PT and YT tokens, sell the PT token and repeat the process which is known as yield compounding. Furthermore, Element also allows users to become market makers, providing liquidity on the principal or yield token to earn additional yield via trading fees.