Polychain Capital Joins $32M Investment in DeFi Protocol Element Finance

Decentralized Finance (DeFi) lending protocol Element Finance announced today that it raised $32 million in a funding round led by blockchain investment firm Polychain Capital. 

Polychain was not the only big backer throwing their weight behind the protocol. 

Tech venture capital firm Andreessen Horowitz contributed more capital this round after making previous contributions. The round also included investment firms like Republic, Advanced Blockchain, and Rarestone, as well as individual investors from Aave, MakerDAO, Synthetix, UMA, and many more crypto projects.

Element Finance’s DeFi lending protocol launched on June 30 this year, offering users the chance to purchase cryptocurrencies like Bitcoin, Ethereum, and USD Coin at a discount. 

Here’s how it works.

If you have 0.8 ETH in your account, you can trade that for 1 ETH priced at a discount. Element Finance then splits the asset into two tokens: One representing the principal position (1 ETH)) and another representing the yield (a fixed yield of 0.2 ETH)). 

Users can hold their principal position token for a period of time, known as the maturation period. At the end of that period, they can sell the discounted token for its full price. They can also sell it at any point prior—but the further the token is from its maturity date, the more discounted it is. In any case, they’ll still be able to enjoy yields from their yield tokens. 

Since DeFi interest rates are largely tied to demand, they can, and often do, drastically change over the period in which a user owns a particular cryptocurrency. To counter this, protocols like Element Finance trade crypto assets at a discount until they mature. 

The protocol also enables developers to build new DeFi products and services on its open-source infrastructure. 

Element Finance has grown quickly over the last four months. Already, the total value locked (TVL) on Element Finance has hit $167.14 million, according to DeFi data aggregator DeFiLlama. It is currently home to over 9,000 active users, according to marketing materials.

The investment raised from this new funding round will go towards expanding the Element Finance team in several key areas, including the engineering, research, user interface, and design departments. 

Polychain Capital co-founder and CEO Olaf Carlson-Wee called Element Finance “a breakthrough financial primitive that has quickly become a cornerstone of DeFi, and soon we think will be a core piece of our global financial infrastructure.”