Decentralized finance (DeFi) startup Element Finance, which is building a yield-maximizing marketplace for crypto interest rates, said Wednesday it raised $4.4 million from Andreessen Horowitz (a16z) and Placeholder.
Seeking to gamify fixed interest rates, CEO Will Villanueva told CoinDesk the Element Protocol will imminently launch with a novel two token-system for enhancing liquidity.
The upcoming protocol is poised to enter an already bustling crypto lending and borrowing scene where established firms woo new deposits with the promise of lucrative rates. But those traditional interest rate schemes freeze up the underlying capital, a hallmark feature of lending one’s money that Villanueva sees more as a bug.
Element works by splitting those deposits into two tokens – one representing the principal position and the other a stand-in for the interest rate. Users could then opt to sell the rights to their principal token while still hanging onto the interest-bearing one.
“Because we split it into two positions you can sell your position at a discount so you can get more exposure to your interest,” he explained.
Villanueva said the setup allows users to skirt around high gas fees and other Ethereum blockchain friction points. “You just have to pay for a swap – similar to Uniswap – and that’s it,” he said.
SV Angel, A.Capital, Scalar Capital and Robert Leshner’s Robot Ventures also participated in the round, Villanueva said.