Component launches Yield Token Compounding Tool Built on Element Finance
Component is excited to announce the release of the yield token compounding (YTC) tool built on top of Element Finance!
Component is excited to announce the release of the yield token compounding (YTC) tool built on top of Element Finance!
The YTC tool has been one of the most requested implementations by Element Finance’s community from the start and will unlock highly profitable strategies using their DeFi platform. The initial iteration of the YTC tool was built by a small team during the ETHGlobal HackMoney hackathon, and after a few months of iteration and feedback from the Element team, it’s live!
At Component, we will continue to work on further improvements and iterations going forward for our YTC tool. Our goal is to provide the best possible experience while doing YTC on top of Element Finance. Please note that this is an experimental beta and is the first iteration of the YTC tool.
In this blog post, we will explore the YTC tool’s use-cases, optimized simulations, and its future improvements
This is a guest blog post by Component’s team on Element Finance’s Medium Publication.
What is Component?
Component is a data-driven decentralized finance company that makes DeFi investment strategies across all protocols, chains, and L2s simpler by using an optimize-first approach. The yield token compounding product is the first of many tools to come and showcases how complex DeFi strategies can be simplified and accessible to all.
What is Yield Token Compounding?
Element Finance’s split token mechanism enables capital efficiency on your principal when you decide to mint Principal Tokens (PTs) and Yield Tokens (YTs). This mechanism allows users to sell their principal at a discount at any time and gain access to the base asset liquidity while keeping their YTs. Yield token compounding is exactly what it sounds like: the action of a user recursively Minting and Selling their Principal Tokens (PTs) into the AMM to increase the overall quantity of their Yield Tokens (YTs), resulting in an increase to their yield exposure. Since you can sell your principal tokens when there is liquidity, you can then continuously, in cycles, mint PTs and YTs and sell your PTs to compound your yield token exposure exponentially.
Optimized Tooling and Analytics.
When manually compounding your yield, you have to make multiple assumptions and decisions.
- How many cycles of compounding will give me the most profitable position?
- Can I expect the yields to maintain a profitable variable APY?
- At what APY does the position become unprofitable?
- Is the fixed-rate higher than the variable rate? (and vice versa).
- How much yield exposure do I want in comparison to my invested principal?
- What is the most gas-efficient way to make all of these transactions?
To answer all these questions, we’ve built a simulation tool that will help you make better decisions by providing you with the ability to simulate different scenarios with compound cycles and target APRs of your choice.
*Note that in the first version of our simulation tool, you will be required to approve the tokens first. In our next release, we plan to allow simulation without token approval (no gas costs).
Here are some data points that are available after simulation:
- Expected gain or loss.
- Estimated APR return.
- Basic simulation of 1 to 8 compounds.
- Advanced options where you can choose a specific # of compounds up to 30.
- Expected gas expenditure.
Plans and Future Improvements
The YTC tool’s smart contracts have been vetted and peer-reviewed, and we are planning to go through a formal auditing process soon. We are also always looking to make UI/UX improvements around analytics and raising currently capped compound thresholds (e.g. 30 max compounds).
Our first improvement will be a change to our simulation tool that does not require token approval and actually simulates the transactions via a mainnet fork.
This project will be open-sourced, making it available for contribution and feedback. To find support for the YTC tool, please use the Element Finance discord server, or you can reach out to us on Twitter.
Special thanks to the Element Finance team for continuous feedback.
This is one of Component’s first product launches. We have more developments and announcements to come soon.
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