This interview is part of a series we’ve dubbed “Not Interviews” where we give you a peek behind the curtain of Element Labs - introducing you to the team as well as how they’re thinking about the space. In today’s series, we meet Windra Thio - Growth Lead at Element Finance.
- Better boss - Johnny or Will? Both :)
- Remote work or your own huge office in your fav city (but you have to go there every day)? Remote
- 1 million severance pay or opportunity to work in element but with a cut salary ? Work at Element
- Classical music or techno? Classical Music
- Netflix or HBO? Netflix
- Restaurants or home food? Home food
- Digital nomad lifestyle or be settled down? Settled down
- DAI or USDC? DAI
- Wealth or family? Family
How did you first get into DeFi?
Before I worked at Element, I did a lot of early stage project development research. This was in 2017, when there were all these L1s. So I worked for a research firm that had close relations with Crypto Briefing. At that time, Andre Cronje was the code reviewer for Crypto Briefing.
So we had a really good relationship. I was one of the earliest users of Yearn back then it was called iEarn. I remember he messaged me in February of 2021, - he’s like “okay, I just launched this thing and all it does is jump between Compound and Aave and it's currently netting like 21%, you should try it out”
I didn't think that there was going to be anything happening with YFI, you just get it naturally and I didn't really sell so I still have a ton. But basically, anything that Andre built, I would go into. And I mean, this includes the insurance cover stuff. This is including the stuff that he launched that got exploited.
And so you know, I got hit a lot, but at the same time it helped my Degen score a lot. It's been a roller coaster, of course, you know, DeFi summer and everything was nuts, too.
Why did you join Element?
The reason I joined Element was because, it was a product that I wish existed, to be able to sell your principal and just hold on to the yield tokens, basically I can go into Kimchi finance and get the yield but get out of the position and not have to hold kimchi tokens and go to the next thing, like Kimbap finance.
And that was just something that I wish had existed earlier and eventually evolved into this fixed income fixed marketplace with a complex AMM, and all the math, but then really thinking about the product stuff.
And the implications of what we're building and what we could become was super interesting. Solving hard problems is something I wanted to sign up for and that was kind of how we all got started.
How did the team come together?
I remember meeting Will and Jonny for the first time. We had a mutual friend who was also a researcher, who said, hey, you’d do great working with these other guys. It was great to see the team grow from such a small group and coming to what it is now.
Initially a lot of the early stuff was just feeling each other out. Asking if this is what we want to do because we were all pretty stable and we loved what we were doing. But then to jump into something completely new and explore it and commit to it was like, okay do we want to commit to this - we had to really think about it. But yeah, and it became, like you just mentioned, it just really took off.
How does Element plan to bootstrap v2 liquidity?
Because of how efficient our AMMs are, it doesn't really need that much liquidity. The invariant curve is really capital efficient for trades. So you only need like $20 or $30 million worth of TVL to be able to do really good trades across different assets and fixed income while having really low slippage. So because of that, after that initial stage of marketing of getting foot in the door, it's easy to build products on both sides.
Are markets inherently adversarial?
People believe that every market is PvP (ie. there's a winner and loser on every trade). But I strongly believe that Element is not PvP, because each side of our products cater to different users.
For example, when others are trading perp or buying and selling options, there's always a winner and a loser because both sides of the trade are done by the same types of user.
But on Element, the people that are buying fixed rates are not the people that are leveraging interest rates on the variable side, one is willing to take on higher risk. The other one is risk averse.
The people that are buying fixed rates, like the Mihai’s of the world, who work at Bank of Canada, their mandates are principal protection, long only - no shorting - fixed income only - guaranteed returns.
The people like the Pantera Capitals of the world, they're the ones that are leveraging up and have the fund structure to be able to take risky positions.
How do RWAs affect future crypto variable rates?
When real world assets come in, when credit lending comes in, or when yield sources that are market neutral exist, the variable yields become a lot more consistent and stable.
For example, when we wrap something like Goldfinch, their interest rates in the past 1 to 2 years have been the same, even though ETH has gone down by like 75%.
When we wrap positions like this, that are market neutral, the variable rate is going to stay relatively close to what their historical rates have been for several years - call it 8%.
But then people who have a mandate to buy fixed rates come in and can buy it up from lower than historical average - call it 4% up to closer to the variable at our hypothetical 8%.
It’s no longer speculation on the interest rates, it’s just arbitraging the fixed rates back to the variable rates that have been consistent, historically.
When we're lending to real world companies - when all of these things happen, there's additional use cases for stable coins in general, but also the stability on the variable rate side stays a little bit more consistent.
How far out are RWA and how do you mitigate the risks?
I think real world assets are gonna take a little bit longer. I think lending to institutions that are market neutral is probably the first step, like lending to Maple Finance. For instance, we could wrap a Maple vault where their APYs hover around 6 to 8% or we could wrap Goldfinch where their senior pool rates have hovered around 8 to 10%.
Even though there is a risk of default, we could package a product that kind of facilitates a purchase of some kind of a default insurance. These are the kinds of things that I think are solutions to be able to keep the variable rate fairly high.
So there's really good action on both sides of the market but if you think about it, both sides win, right? Because you're satisfying two different sets of mandates. So it's not really PvP.
It's just when market opportunities exist, there is no winner and loser for every trade. Every time I sell the fixed income to arbitrage the rates, a person with a proper conservative mandate buys that in big sizes.
What happened with Element’s pilot with Fiat DAO?
Fiat DAO is a lending protocol that accepts Principal Tokens as collateral to mint FIAT.
The collateral on Fiat DAO was our principal tokens. I think it was originally the only option. So people bought fixed rates at 5%. They use it as collateral to borrow more USDC because the lending rate was around 1%. And then they bought more fixed rates, and total fixed rates went down to 2%.
You're just leveraging or arbitraging the fixed rates to the lending rates on Fiat. And so this is also possible even more so when there's actual deep liquidity in that USD pool.
At the time, Fiat had only $1.5 million. Now it's over $3 million. So people are still able to do it more. But bringing this possibility to larger lending protocols with deeper liquidity and bringing the possibility of leveraging fixed income is just massive. And so we're trying to highlight that and give them the possibilities and the implications of what this does for someone like say Maker.
How can Element facilitate a yield curve for DeFi?
With Element not only are we able to stabilize and arbitrage all rates to be a little bit more uniform but also we’re finally able to create a yield curve, like a proper DeFi yield curve.
Right now, it doesn't make sense. It's not logical. Like if I deposit into DeFi protocols today, and you've been a depositor in these protocols for two years, we're getting the same interest rates, that makes no sense for you, and there’s no incentive to be a long term depositor.
So our fixed maturities are creating the yield curve.
It's another step in maturing the markets.
What new products do you see being built on Element?
Last product that nobody ever talks about that I'm interested in is a third split, like there's a principal token and a yield token split. I'm interested to see what if we could split away an additional market that gets a percentage of the APY, but backstops the principal.
Because then that creates this thing called a stablecoin depeg insurance, which doesn't exist currently, like what if you could protect against de-pegs?
Right now yields only protect against smart contract risks, we can basically create this insurance that protects against all risks, it just basically ensures that the fixed rate is guaranteed.
This kind of product would say, look, the APY is 10% and we're gonna move 1% of the variable to this pool. And this pool has to only protect five cents. That means for every single dollar that they put in, it basically backstops $5 worth of tokens or $5 worth of interest rates in this specific principal token protected pool. So you divide that between the 1% variable APY that means for every $1 you're getting five times the APY for backstopping the principal pool.
It's a product that basically is an insurance solution that is better than the current insurance solutions and only protects certain things. This protects everything. This protects front end risks, spoofing, phishing, everything, even a depeg you know, because it's backed by the dollar rather than the stable coin itself.
What motivates you to build at Element?
I think that it’s extremely rare to be given the chance to tackle an unsolved problem. It’s like playing a game for the very first time without instructions and relying on your own ability to think critically from different perspectives in order to come out with the right resolution.
You need almost every single characteristic of a successful person - confidence, humility, trust, leadership, and unassuming – to win. Going through a discovery process to realize if you possess these traits or not is exciting. The end result from winning these small battles (coming up with solutions for small problems) leaves you with a great feeling of accomplishment. You can have all the money in the world, but being able to leave a mark and help pioneer a new endeavor is a once in a lifetime opportunity.
Building something around fixed income that prioritizes variables such as risk adjusted returns in a space that is filled with risks is challenging, but not impossible. We’ve seen many give up, and we’ve seen very few rise up and relentlessly stay motivated to continue pushing forward.
What are your honest opinions on the Element team?
I really like the culture that’s been built here, everyone’s pretty lighthearted and wholesome. Everyone’s great at what they do and super try-hard. Credit to the guys at the top for establishing what we’re all a part of now, but it’s extremely enjoyable to be a part of this team.
Acknowledgements and special thanks to Windra Thio for the great conversation and Gregory Lisa, Will Villanueva, Tina Haibodi, and Kay Kaverznaya for the content review and graphics!
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