 So today I'm going to be talking about LP, Volatility Harvesting Across Yield Rates. So Element Finance, we had an event last night, if any of you are there, thank you for coming. So it was super cool, super enjoyable. I'll go into what we do in a second, but one of the major things, or one of the things that I want to talk about is what is volatility harvesting? So volatility harvesting at its essence, if you think of AMMs in the current market, are sort of volatility harvesting engines. And what does this mean is as spot prices drop or as spot prices rise in the space, this gives opportunity for market makers to then go ahead and arb the market, make profit, bringing those spot prices to a certain level, and it allows LPs to capture fees and get value from those volatility changes. So this is essentially what I think of when I think of a volatility harvesting tool. So let's apply this to the yield markets. Before we do that, let me give you a quick intro into what does Element Finance do? So Element Finance at its core is a yield splitting protocol. So what we do is we take different yield sources in the space. Let's say you have an STE position, let's say it's a urine position. A lot of our things are built on urine. And what we do is if you put a million dollars in, we take that position, we split it into two parts. So there's the principle and the interest. So you have a one year lockup. If you have 10% interest on this position, you have a million dollars in principle. And I guess this shows 20%. So 20% on a million dollars would be 200K in interest. So at the end of the term, at the end of the year, you can collect both of those. We use a curve. This was developed mainly by actually yield space. We did an alteration on this curve. It's called the constant power sum. And essentially what we do is during the market, we let people essentially stake the principle that they have that's locked up. And what the curve does is it's a time-based curve. And it sort of follows this concept, you know, where I give you a dollar for 99 cents or 90 cents. So this is the concept of the opportunity cost of money. So if I say, hey, I'm going to offer you this million dollars, but you can't touch it for a year. You can't do anything with it. What is it worth for you to have that million dollars? I can't put it in a savings account. I can't stake it. I can't farm with it. I'm losing some type of interest on that, right? So I say, hey, I think I could probably get like 15% APY. I'll give you 90% of that. So here's a dollar. You can't use it for the next year. I'll give you 90 cents for that dollar. And so what this curve essentially does is it acts with respect to this time period between the constant product and the constant sum formula. So early on, it has price discovery. You can have the APY change on the principal. This million dollars, it's locked up. And later on, it sort of converges one-to-one value. If I say, hey, here's a million dollars tomorrow. You can't use it until tomorrow. You'll probably buy it for a million dollars versus for a year from now, then you get that opportunity cost. So this is essentially how that works. So what we saw early on in our platform is these markets actually worked really well as people locked up their principal and the AMMs. People were actually trading these with the opportunity cost of money based on the variable rates that you could see in the market. So for example, when we had first launched, we saw a curve tri-crypto term where the yield was the fixed APY was at 15%. And the variable rate was at 9% in this term. So what ended up happening is the fixed rate, people actually brought the fixed APY to be higher than the variable APY. How does that make sense? It's hard to grab that. It's hard to understand that. What happened is we were in a market low. So the variable rates had all dropped in the space, and people were speculating that they would rise. And sure enough, they did. They ended up making money off of it. And so why is that related to the number of value here? So we have this system called yield token compounding, which essentially lets you go through and leverage your exposure to variable interest. You go long on variable interest. And it's this concept where you mint these principal, these yield tokens. You sell your principal for a fixed APY percentage. And you do this repeatedly until you own a stronger exposure to the yield. So I don't want to go into too much depth here, but if the variable APY is at 20%, and let's say the fixed APY is at 10%, I have a 10% spread. If I basically rehypothecate and do this, I deposit, I sell, I deposit, I sell, I deposit, I sell. I do this six or seven times. I can 7x that to around 70%. So this causes an upward price action in the fixed rates in the market. And so if I believe the variable rates are going to go significantly higher, I might be willing to let the fixed rate go higher than what the current variable rates are. So we saw some other interesting volatility behaviors. At one point there was, I actually did a talk about this at another conference. There was issues with MIM. I think a lot of you remember that. There's a whole scandal there. We have a lot of those sometimes in our industry. And the fixed APR popped up to 130%. And then we had another case where we had a WBTC vault, where it dropped completely to 0%, actually. And during this time, we saw a lot of volatility movement. The price action, basically the fixed APYs went up and down. It went to 50%, to 100%, down to 20%, back up to 70%. It moved all around the place. And so this is sort of an example of the volatility in action. Eventually it normalized to around 10%. So what do we notice in the fixed rate market? Is it generally sometimes, except for some of these exceptions, it tends to follow the variable rate. Ends up being somewhat similar, the APY to what the variable rate is in the market, sometimes a little less, sometimes a little bit higher. They tend to track each other. They're correlated. This is what we've seen from the data that we've gotten in our current V1. And this is where I've done a talk on this before is essentially these fixed rate markets that we do, they're not really just fixed rate markets, they're yield markets. We're essentially creating this value capture mechanism for yield markets. And so what is element finance and these systems and fixed rate systems as a whole? You can sort of see them as it's more than a fixed rate system. It's a highly liquid arbitrage market that lets you sort of play and create profit as yields shift within the space. So as yields spike to 10, they dropped to 2, I can create profit off of this. In a similar way that if ETH spikes up and then drops, I can create profit mechanisms off of this. It also allows for really cool things like leverage, going long variable, being negative on the future variable interest. I believe this one's going to go to 0%. This farm shot up in value. So sort of the dream for me, and it's not just element, it's sort of the fixed rate space just akin to some similarities to zero coupon bonds or the things like that, is that it ends up becoming this intermediate layer for yields across lending and borrowing platforms and also not just lending and borrowing platforms, but yield platforms as a whole. So real quick, I'm going to go into one example. This is going to be, I can't go into a lot of the depth, but I want to sort of paint a picture. So I did a Twitter thread, you can check it out on Twitter, it's pinned, where I actually coded, I went for a week in my room and coded a bunch of simulations, and this simulation particularly was on something called Fiat Dow, and what they did, it was akin to Maker where they had a 1% stability set fee, and that 1% stability fee is basically your borrow rate. And what they did is they took principal tokens as collateral. So I could take a principal or a fixed rate, these principal tokens are these fixed rate tokens. So I could buy a fixed rate, use as collateral, borrow Fiat, swap that to die, buy more fixed rate die. I could basically leverage into the fixed rate side. And so if the borrow is at 1% APY or let's say Maker's stability if you want to think in relation to Maker or other systems, is that 1% APY? And essentially what we're able to do is if the fixed rate is at 3%, you can leverage into that fixed rate until it basically converges to that 1% value, which is really cool. And what does this also allow for? So there's this concept of fixed rate borrowing mechanism or adapter. There's a few people who are working on this on the element platform actually currently. And essentially what this is, is you could take these instruments that we have and you can plug them into Compound and Aave in existing systems. And what you do is you essentially create a hedge market. You transform them into fixed rate borrow markets. So let's say I have a Compound borrow position, let's say I'm borrowing die from Compound. Let's say we hit very low utility rate. And in this case, the APY to borrow goes low. Let's say it goes to 0.5%. This is great. I want to lock that in. So what you can do with the system that we have is you take out that borrow and you hedge by going directly into the yield. So these are the yield tokens I talked about earlier. And what you do is let's say in this case I'm saying lending is at 3%, whatever, borrow is at 1% APY. If suddenly the borrow goes up to 10% APY, the lending side also is going to spike up to around 10% or 12%. And so because I hedge my borrow position with this yield exposure on the lending position, that means my borrow position gets pretty stable. I'm hedged against stark drops or rises in the interest rate. This is really cool because we can basically turn it in any platform, lending platform. It doesn't matter what chain into a fixed rate borrow system. This can be built on top. This can be an adapter. So what does this mean is if you sort of take a step back, you can see that these mechanisms, these fixed rate and variable rate in these yield markets that we have, what they do is they create this convergence layer for DeFi rates, for lending market rates. You use it to take out borrow positions. You can create essentially fixed rate and variable positions on the lending side, the side where you get APY. And when you go cross-platform, if I basically do a fixed rate borrow on platform A, and then I essentially use that to sort of go into and purchase the principal tokens on platform B that are certain value, you end up having this sort of liquid layer in between that brings all those rates to convergence and brings them together. It's really cool. I wish I had a better diagram for this, but I'm sort of starting to introduce this topic and playing with this. And this works across different L2s, L1s. It's really, really powerful actually. And so we've already started batching basically activities on Aztec or Ethereum. And so what I sort of see is this world where we can sort of batch a lot of the activities from different layers, different chains, all on one chain. And you can sort of interact and arbitrage basically the borrow, the lending rates, the yield rates within that one chain that sort of works as a centerpiece for everything. So I want to talk for a second about AMMs. So AMMs, I think there's a lot of downsides to them. So we had Uning V3 with concentrated liquidity model. You can kind of see AMMs also are sort of a free straddle option for market makers. A lot of the value that's captured off AMMs goes to market makers, not to the people providing the liquidity, not to the LPAs in an organic way. This is why a lot of people are doing research on cool ways. How do you bring MEV into the actual AMM? How do you bring transaction ordering and validator activities into the actual AMM? Because sort of the most altruistic position in the markets is being an LP. Especially in an organic market where you don't have emissions, things like that. And they take on a lot of risk. So spot prices can go up, down, through the roof. A lot of times can see less gains than if they had held one position or worse gains on the other spectrum. And so there's definitely work that needs to be done on AMMs. But they're really, really good for yield prices and yield tokens and principal tokens and everything that's involved there. And the reason why is because if I have a fixed rate USDC, and we call these principal tokens in our platform, and that's at 10% APY over a year, that means it's going for 90 cents. Day by day, that 90 cent value converges to $1. You don't really experience any impermanent loss. It's sort of more like a stable swap. The fees are pretty cool as a percentage of that yield that people secure and swap with. And that's really interesting. And so one of the issues we've had in V1 and what we've been doing is we have this liquidity fragmentation. It's like I have this six month term, this fixed rate term that I'm interested in. But it's three months through and now I need to switch to another six month term or as an LP, I need to make sense for me to pull out my position and go into another one. These are some of the weaknesses. So we did a bunch of simulations and analysis in our current fee markets, capturing volatility in the space, which is super interesting. This is fairly complex. The main thing that I'll share, the biggest learnings is as you see yields rise, that is one of the highest value capture mechanisms for LPs. As you see a yield rate drop, this is actually, also if you're active, extremely profitable. So what happens if a yield rate drops? So in this case, we have a situation where we're going from 10% to 2.5% APY and in 2.5 months, it drops to 2.5% APY and this is a six month term. So that drop essentially brings that principal token, right? If 90 cents on a dollar would be 10%, if it drops to 5%, then that's 95 cents on a dollar, right? 5 cent discount. So essentially, it's worth more and what you can do as it drops is you just sell the principal token. So someone who locked in a 10% fixed rate APY, in 2.5 months when it dropped to 2.5%, they sell the principal tokens, they got 4.2% return in 2.5 months because they sold it, which equates to 20% APR. So if you're going into a position and you see, you know what, I believe this rate's gonna drop. It makes sense to buy the fixed rate side because once the rate drops, then you can flip that, you can sell that. And then you can basically get an early redemption on your APY. You get fulfilled quicker. On the other case, if the APY rises, you get a higher exposure to the fixed rate APY to get more yield exposure. It's also a profitable endeavor and mechanism. And so what does this lead to? This sort of leads to products that can be built on top, active strategies, vaults, really interesting things, even bots that market makers can do. To really capture a lot of this value. The value is absurd that can be caught, especially once you're doing borrowing lending markets, once you're hedging on those, once you have principal tokens as collateral, once you have these markets running truly smoothly. There's a lot of ways to sort of make profit off of changing yield rates. So it's fascinating. So another thing we saw is it's sort of unideal for an LP because with these terms we used to have, we're essentially, in Element, we have usually six-month terms and we do a new six-month term. What happens is here's the simulation. The fees drop off as this term ends. It doesn't really make sense for me as an LP to stay the full term. It makes more sense for me to pull out. Why do the fees drop out? Because as time goes on, the value converges. So you have less of a differential, so the fees are less. And also people are less likely to trade on like one month left of APY. Johnny Ray, my co-founder, we're both ETH2 researchers, but he actually recently came up with a new model. We're calling this Hyperdrive. And it introduces no more terms, LPs as perpetual positions. And essentially this new AMM that we've been researching and we'll be releasing a lot of data on this, simulations on it here soon, lets you basically underwrite someone to take out a fixed rate term on whatever time they want. So they can say six months, three months, and it's a brand new term. You don't have to worry about these terms going halfway into a term. I have one month left. You underwrite that position immediately. And this is really good for LPs too. This is really good for users. If I want to take out a loan from Aave, I want a one month, three months, six months. I don't want this weird halfway position thing. For an LP, it's a perpetual position. I get average exposure to basically all these different term lengths. It's a really good situation for them. They're able to capture and garner more fees. And this also allows for just better systems to be built on tops, simplicity, and better vaults, better value capture mechanisms, better ways to go long and variable yield on the market, better ways to be negative on variable yield and sort of play with these markets and have fun. So this is LP volatility harvesting cross-yield rates. I'll try and release a lot more simulations and data here soon on Twitter. Follow us. This is really cool. We are doing some new and groundbreaking research here. And there's a lot of profit mechanisms. So pay attention is all I have to say. Thank you. Thank you, Will. We have a little minute for some Q&A. Anybody have a question? Okay. So earlier this year, there was a project called Defraud's Finance on Avalanche, and they did leverage yield farming. But they had a lot of trouble with keeping the liquidity in order to do that. So in your example, where you had that three to seven leverage on the dyes, how do you maintain that liquidity to keep that so people actually want to trade the other side on you? Yeah, so great question. So we actually saw like, I think it was through the bull market, something like $400 million of trades on our platform. So we actually saw a really active activity on yield token compounding or increasing your exposure on the variable side. I think maybe some of your question is, how do you match that if you have leverage to the other side, because that's sell, how do you match that on the purchase side? That's why things like having these fixed rates is collateral, right? Being able to leverage into buying the fixed rates is important. Liquidity is another thing, like liquidity is down significantly in the market, including our platform. I sort of think we build sustainable strong products, things like Hyperdrive, that makes sense that are a significant leap on what exists in existing Treadfy. Like this stuff doesn't exist. It's crazy cool. And I think it's just a matter of time of sort of building and garnering that space. I've been looking at a lot of things too, looking at reward assets, like some other things that couldn't also play in as yield sources. I think staking derivatives are really good yield sources. People are gonna do those regardless. MEV is an interesting one, et cetera, et cetera. No more questions. So thank you, Will. Cool, thank you.