Fixed Rates for Everyone: L2 Scaling is Coming to Element

We’re excited to announce that layer two (L2) scaling is coming to Element through the Aztec Network!

Fixed Rates for Everyone: L2 Scaling is Coming to Element

We’re excited to announce that layer two (L2) scaling is coming to Element through the Aztec Network!

Lower gas costs have been one of the most awaited features by the Element community, and, after careful analysis, we’ve chosen Aztec as our first exploration into L2 scaling solutions.

The high gas costs for transacting on the Ethereum Mainnet have priced out many users from using our platform. With lower transaction costs, smaller transactions will be economically viable, and more users will be able to participate.

Read on to learn more about how we’re solving this issue with the help of zkRollups!

What’s Aztec Network?

Aztec Network is a Layer two network that brings scalability and privacy to Ethereum through their zkRollup service. Their service encodes transactions as zkSNARK proofs, rolls them up into a batch, encodes the batch as a single zkSNARK proof, and sends that final proof to the Ethereum mainnet.

All of this means that:

  • The network is capable of making transactions in batches, which cuts gas costs in proportion to the size of the batch
  • The network can process transactions while protecting the privacy of the involved parties, thanks to Aztec’s usage of Zero-Knowledge proofs

How does Aztec help Element users?

Element transactions with Aztec will be batched into rollups that will be scheduled to run based on the relative demand per asset. This means that as demand grows, batches will run more frequently and become larger resulting in cheaper gas costs per transaction.

We’ve analyzed our users’ trading activity on Principal Tokens across different terms, and have come to the conclusion that the integration with Aztec Network could bring gas savings ranging from 6x to 40x on average, depending on the specific term and asset. The savings are even more significant for redemptions, in which most of the users transact within the same short time span.

To be more specific, below you can see a table with an estimate of the gas costs and savings for purchasing and redeeming a principal token:

The totals below show the estimates for purchasing and redeeming:

As the batch size increases, so do the gas savings. In other words, as the number of users that make the same type of transaction within the same timeframe increases, the cheaper it becomes to use Element.

Initially, Element transactions through the Aztec Network will only be available for Dai. Users will be able to purchase fixed rates on shielded Dai through the Aztec’s portal. We will be working closely with the Aztec team to gather community feedback that can help us determine what new types of assets and transactions will be supported in the future.

Why choose Aztec Network over other L2 solutions?

What’s unique about Aztec is that their rollups interact directly with existing smart contracts and liquidity on mainnet. So, the integration with Aztec will allow us to avoid liquidity fragmentation because it postpones the necessity of deploying Element Finance on multiple L2 networks. In the meantime, it brings the benefits of scaling and privacy today, while the L2 landscape continues to evolve.

Liquidity fragmentation is a significant issue for any kind of trading platform because it leads to low liquidity, and it makes larger trades inefficient, leading to lower trading activity and fewer opportunities for users to make a profit. Additionally, it could result in a confusing user experience, and increase the overall complexity of the platform.

Final thoughts

Element Finance has always been committed to bringing the virtues of web3 to as many users as possible. This new integration will bring the fixed-rate market to users that were previously priced out of the market due to high gas costs. Additionally, users will benefit from the strong privacy guarantees of Aztec’s zk technology.

Integrating with innovative projects like Aztec is just one of the ways in which Element is spearheading the way forward for web3, so keep an eye out for this development in the coming months and for all the other cool things we’ve got in the works!

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