Element Raises $ 4.4 Million to Offer High Yield Crypto Loans

In short

  • Element raised $ 4.4 million from top investors including Andreessen Horowitz
  • Startup promises to allow ordinary investors to earn high returns by lending their Bitcoin and Ethereum
  • Element CEO Says It Brings More Liquidity In Ethereum Lending Markets

In the rapidly growing world of Challenge-short for decentralized finance– it’s common to hear that traders earn double-digit interest rates when they lend their crypto. For ordinary investors, who are fortunate enough to earn even just 1% in traditional financial markets, the prospect of such returns is enticing. But unfortunately, for most people, the DeFi world is a highly technical place and the platforms on which traders earn these high returns, such as Compound and MakerDAO, are too technical to use.

This is why the arrival of a startup called Element is so intriguing. Backed by top-notch investors and a team of respected DeFI veterans, Element says he’s built easy tools for anyone to lend Bitcoin or Ethereum, and earn the high returns seasoned crypto traders have collected. Wednesday, the announced start he had raised $ 4.4 million in a fundraiser led by Andreessen Horowitz and Placeholder.

DeFi is a catch-all term for a collection of financial products, primarily on the Ethereum network, that allow their users to trade, borrow, and earn interest on cryptocurrency holdings without the need for a third-party intermediary, such as a bank.

Element is touting itself as the first DeFi company to offer “a fixed return, not a locked return,” and it is relying on a new digital token system to pay for those high returns. More precisely, those who lend Bitcoin (BTC) or Ethereum (ETH) receive tokens which represent a discounted version of these assets, which can eventually be redeemed at their full value. For example, a person who lends 10 ETH may receive 11 units of ETH at a reduced price, which will take their full value during the term of the loan. It’s like buying a $ 90 bond that will be worth $ 100 in six months.

“Our users will be able to buy BTC, ETH and USDC [a stablecoin developed by Coinbase and crypto payments firm Circle] at a discount without being locked into a fixed rate term, which allows for an easy swap between the discounted asset and any other base asset at any time, ”the company explains.

While Element isn’t the first to offer high yields on crypto lending – others include Celsius and BlockFi – it can provide the most accessible service of its kind yet.

In an interview with Decrypt, CEO Will Villaneuva explained that Element’s protocol allows potential lenders to avoid the so-called gas charges that can wipe out any interest gain they would earn. (Gas charges are basically the cost of doing business on the Ethereum network. They are paid to minorsthe people who help secure the network and validate transactionsand they vary depending on how busy the network is at that time.)

This issue will be familiar to non-technical crypto owners looking to access platforms such as Compound through portfolios like MetaMask or Coinbase Wallet. By attempting to lend crypto in this manner, crypto owners will be offered paltry returns – typically less than 0.2% – and be asked to pay more fees than they would earn.

Villaneuva says Element will allow non-technical users to achieve much higher returns and in doing so will introduce a new wave of liquidity in crypto capital markets. Meanwhile, more sophisticated traders will be able to use Element to get more out of their holdings, especially taking advantage of a feature in the protocol that splits the loan into tokens representing principal and interest. Here is an illustration of this work:

Villaneuva also noted that Element users will be able to use these token mechanisms and earn a return not only through loans, but by taking staking positions in projects such as the Eth2 validator, Yearn and Curve.

According to Robert Leshner, founder of Compound and investor in Element, the startup could have a significant impact on the crypto industry by simplifying the DeFi investment process. He also noted that Villaneuva, who worked with Ethereum co-creator Vitalik Buterin, and the rest of the Element team are uniquely positioned to achieve this thanks to their experience on other DeFi platforms from foreground.

“The Element team is made up of some of the best members of Maker, 0x and Yearn and they understand the performance optimization landscape better than anyone. We were delighted to help such a talented team expand performance opportunities. in DeFi to staking and beyond, ”Leshner told Decrypt.

Element’s launch, which will be available to all crypto investors in the coming weeks, comes as the DeFi industry as a whole is rapidly maturing and becoming much more liquid. Last month, for example, the popular DeFi Uniswap trading platform updated its protocol in order to allow market makers to offer prices within a specific range – a feature that increases the efficiency of the deployment of their capital.

Meanwhile, a recent report in Bloomberg explored how the recent crypto bull run fueled massive demand for Bitcoin loans and led to interest rates as high as 12%, as many conventional banks are still reluctant to accept crypto as collateral.

Villaneuva predicts that Element will be used to significantly expand the size of the loan market for Ethereum.

One area of ​​potential uncertainty for Element is the continued inability of the US government to provide clear fiscal guidance for crypto. It is not clear, for example, whether trading Ethereum for discounted Ethereum tokens would amount to a taxable event. Villaneuva, who notes that Element has undergone several security audits, says the startup is exploring the issue.

Besides Leshner, Element’s other investors and advisers include Aave CEO Stani Kulechov and Consensys founder Joe Lubin. (Disclosure: ConsenSys Provides Funding to Independent Publisher Decrypt.)

About Jonathan Bell

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