Introduction to Element Finance

Okay. Hello everyone. I am Matthew Brown. I'm one of the founding engineers at Element Finance and today I'll be explaining the ETH NYC Hackathon workshop we're hosting . Okay, let 's get started.

Today I'll briefly explain the history of Element Finance and how the protocol works, and then we'll get into the hackathon stuff and talk about three things that would be great if people built . First, we have new yield sources . Right now we are mostly rapping , and we want to add a few more protocols to the Element protocol and get a stable return . Secondly, we also have structured products. We want people to build more things on the Element protocol want people to build more things on the Element protocol , let me discuss what structured products are and give you an example .

Finally, there is the Elfie NFT project, which was gifted to the community during our DAO launch . We want people to build more new things on this . There is a lot of potential in this to bridge the gap between the NFT and DeFi worlds . We're curious to see what ideas the community comes up with about this , and we'll discuss them soon. This video is approximately 10 to 12 minutes long .

So, let's get started. Okay. What is Element Finance ? Element Finance was formed two years ago, in 2020. Last year we launched the mainnet and have since updated our protocol to v 1.

1 . We added some upgrades and also launched our DAO, along with the NFT project I mentioned earlier . What does Element Finance do? Basically it's a fixed rate yield source protocol, we'll talk about how it works later , but what we do is wrap variable yield sources. These can be pools that you can find in yearn, curve, and many other places in the Ethereum ecosystem .

We will implement a token splitting strategy to create a fixed yield. How does this protocol work? If you know how traditional pools work, you start with any asset, for example Ethereum, and put it in a pool that pays variable interest. Instead, that pool gives you an LP token, which represents your stake in that pool . As the assets in the pool grow, when you redeem an LP token , you get back more Ethereum or asset than you started with.

Element Finance works a little differently, but in much the same way . We take the same pool and pack it . Now when you deposit your assets, for example Ethereum, what you get is not an LP token, but instead two tokens: one is the principal token and the second is the yield token. So as you might expect expect , the principal token is the actual amount you deposited. One key difference, however, is that when you deposit through the Element Protocol , the funds are locked up for a period of time, and this is crucial to creating a stable yield.

So when you deposit tokens , the principal tokens at the time of redemption will be equal to your investment . Here, for example, if you start with one ETH, when you redeem them after the time limit is up , you can exchange that principal token for the one ETH you deposited . Yield tokens, on the other hand, are based on interest from an underlying pool. For example, let's say a year has passed and the pool has earned about 20% interest for that year . So that yield token gains that value over that year, and at the end of the term, you can redeem the amount of interest you've earned .

In this case, that would be approximately 0.2 eth . And where does the stable yield come from in all of this? Again, let's start with one ether and mint one principal token and one yield token. Let's say there is a one-year term with a variable rate of approximately 20% .

So at the end of the time frame , one principal token can be redeemed for one ETH and one yield token for approximately 0.2 ETH . Let's assume that at the beginning of this timeframe, the person who minted the principal and yield tokens does not want to keep their principal . Only yield is important to them. There are many reasons for this , which we can talk about later .

So they sell their principal token at a discounted price of 0.9 ETH. The reason they are selling at a discount is because the funds are locked up . So there is some opportunity cost here . No one buys it for exactly one ether, because they have to wait a while to redeem it .

That's why they buy it at a low price and keep it for themselves. Now the person who sold that principal token invested only 0.1 ETH . Remember Remember , they bought the principal token with one ETH. It was sold for 0.

9 ETH. So now their investment is only 0.1 ETH and they expect to get 0.2 ETH through the yield token . So this is one strategy in this protocol.

If you focus only on variable yield, you can get good capital efficiency . You can sell your original tokens at a lower price and use the yield tokens this way . So that principal token buyer bought it for a lower price of 0.98. They know that when it expires, they can redeem it for one ETH.

And the same generates steady interest. So the buyer of the discounted principal token knows that the value purchased at 0.9 at the beginning of the term will reach one ETH by the end of the term. And you know that that extra 0.1 ETH is about 10% fixed interest .

So these are the basic token economics here. The principal tokens are equal to the amount of money you put down for the term when you try to redeem them. Yield tokens simply mean interest earned. So at the beginning of the term, they did not accrue any interest. So they have no value, but they can be redeemed based on the amount of interest accrued at the end .

We also discussed how the protocol works, which is basically a token partition that separates the principal from the yield. And that's what element finance is. Okay. Now let 's talk about our hackathon topics . As I mentioned before , there are three things we want people to participate in .

They are building on new yield sources, structured products, and the NFT project. Speaking of the first one, new yield sources, it's pretty simple. We currently wrap Earn Vaults , which perform token partitioning to create fixed yield sources within the Element protocol. So two more things we're looking to add to the protocol, like mStable. We have a lot of code that can serve as boilerplate and examples for you to understand how to do this .

We will also set up a Discord channel for you to contact us and collaborate . So yes, these are what we're looking at. Feel free to nominate others , it's very simple and we'll provide you with some resources to get you started . The next topic is structured products. So yes, we would like to see others build on top of the protocol would like to see others build on top of the protocol .

Some amazing things have happened recently. Fiat DAO recently integrated with the Element Protocol to use principal tokens as collateral . An example of a structured product here is a Principal Token Protected Vault. The basic idea behind this is that you can use principal tokens , which have guaranteed appreciation. Because when you buy them at a discount , you can redeem them one for one at the end of the term .

So you can use that difference . For example, let's say they earn 5% interest . That 5% . That 5% guaranteed interest can be used to invest in any other risky product . So when there is a possibility of very high profits and there is a suspicion that nothing may come of it , you can use the guaranteed interest in this Principal Token Protected Vault to invest risk-free in that risky product .

So we think there's a lot of potential for something like this, and we'd like to see if anyone tries it . There are many other ideas as well . Again, feel free to contact us via Discord or bring your own ideas on how to use principal tokens in DeFi . Okay. Finally, there is our Elfieverse NFT project .

So, we want to see people build on this see people build on this . There are some very good ideas that have been proposed . So, as I said said , for now this is just a gift to the community during the launch of our DAO and they are simple NFTs that have no use, but we would like to see if anyone can bridge the gap between DeFi and NFTs . There are a lot of good ideas here . So, one way is for people to add attributes for different things in the governance protocol .

If someone voted on certain proposals , if they created new proposals, if they have voting power in the system , or if they are a member of the GSC, you can have different attributes to indicate all of these . You can also have attributes just for fun , which don't have to be related to the governance protocol . And some attributes don't necessarily have to have any purpose . You can also create a game for community members to work together . Yes, again, there's a lot of potential here .

We want to see what the community thinks about filling this gap . I think it would be a lot of fun . So these are our three basic hackathon topics. Here's a quick note about resources. All of our content is hosted on github.

com element-fi. Here are some repositories for the protocol that may be useful if you are working on the core protocol. So whether you are working on structured products or adding new yield sources , these first two repos will be very useful to you . Elf-SDK and ELF-C contracts contracts . So the SDK has some methods that help you integrate with contracts .

The ELF Contracts repo has actual contracts and some example code and boilerplate for you . If you are interested in an NFT project , the Council repo contains the governance protocol for those contracts, and the NFT Contracts repo contains the contracts related to the NFT project . This is our Discord link. We will also share it under the video. So again, if you have any other ideas you'd like to discuss with us or need help with your implementation , feel free to contact us anytime, we're available .

Okay, that's all. These are our hackathon topics, a little information about Element Finance. So that's all I wanted to say today . Happy hacking, we can't wait to see what you make . Thank you very much.