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The Warp V2 Blacksmith Upgrade Test Launch: Element Finance Assets as New Borrowing Collateral

As previously announced, Warp V2⁠ — the Blacksmith Upgrade⁠ — has been under intensive development. Our team has added new and more powerful capabilities to our existing platform. Now, we are pleased to report that we are kicking off Blacksmith Upgrade with an upcoming test launch.

In this deployment, we are opening up initial V2 functionalities, aimed at facilitating an optimized crypto lending and borrowing landscape⁠ — particularly through the release of our isolated lending pools. This will be augmented by our liquidity vault, Chisel, which enables lenders to provide digital assets for a multitude of Warp lending pools at once through just one deposit on our platform, thus increasing efficiency for lenders while maintaining a broad exposure with a range of different pools and associated yields.

Test Launch Details

Through our extensive experience as users and developers in the DeFi space, we have identified lack of flexibility as a limitation in the crypto-lending space. So, we are releasing functionality for isolated lending pairs in the Warp protocol.

Within these pools, the ultimate goal is for users to be able to come to our protocol with more niche or “long tail” digital assets and participate in a lending pool with specific lending parameters such as collateralization ratio and fees. These pools will consist of paired assets (one long tail and one more standard/popular token) so that users will be able to take out a loan in one of the digital assets in the pool by using collateral in the form of the other digital asset.

Thus, we facilitate previously unavailable token pairings for users to borrow and lend between. This creates a borrowing market for digital assets that do not have other options available.

Further setting our platform apart from other protocols, our lending pairs are isolated from each other. In other words, their risk is independent of the other pools. The major benefit arising from this structure is that users are able to participate in the level of risk they are comfortable with; more risk-tolerant users may seek out higher-risk, higher-reward pools, whereas risk-averse users are able to only participate in more steady return token pairings. This isolation of pools also opens up unique opportunities such as shorting irregular coins and tokens. In this process, users can borrow an asset then directly sell it, where the debt created acts to short these tokens. This can be valuable in the case where the user anticipates a decrease in the price of the shorted token.

While the end goal is to allow lending pools to be available for more unique digital assets with customized parameters, we are kicking off the Blacksmith Upgrade with a test deployment consisting of an initial group of six preset lending pairs. This will prove our concept, while helping us work to optimize our offering before it is fully expanded and deployed.

The test launch for Blacksmith Upgrade will open in September. Initially, the following digital asset pairs will be available in our isolated lending pools:

  • crvTricrypto — Element Finance principal token-USDC

— ePyvcrv3crypto

  • crvLUSD — Element Finance principal token-USDC

— ePyvCurveLUSD

  • crvstETH — Element Finance principal token-USDC

— ePyvcrvSTETH

  • crvTricrypto principal token/crvTricrypto Balancer Pool Token — USDC

— LP token from Element Finance, borrow USDC

  • crvLUSD principal token/crvLUSD Balancer Pool token — USDC

— LP token from Element Finance, borrow USDC

  • crvStETH/crvSTETH Balancer Pool token — ETH

— LP token from Element Finance, borrow ETH

Incorporating Element Finance:

As you can observe from this list, all of these token pairings involve Element Finance Principal Tokens of various kinds, and USDC. Element Finance’s tokens are an ideal asset to incorporate into our lending pairs, as these are unique tokens that have been converted through a variety of protocols and thus have few lending options available, and yet these tokens can be incredibly valuable.

Element Finance is an open-sourced DeFi protocol for fixed and variable yield markets. This protocol breaks up invested digital assets into their principal and yield, with Principal Tokens (PTs) representing this principal. With these individual components, Element Finance can then power a number of use cases with these PTs:

  1. Growing Savings: Users are able to purchase PTs on Element Finance at a discount, with a specific underlying asset, term length, and annual percentage rate (APR). The discount is created from selling the PTs, which are locked until maturity, at a discount. PTs then provide users with a fixed rate, and can be redeemed for the initial investment at term length.
  2. Yield Seeking: By selling their PTs, users are, for example, able to free their principal while keeping their yield position. This increases capital efficiency and allows users to even further leverage their yield. Additional earnings can be made by liquidity provisioning on PTs.
  3. Trading: Users can buy and sell PTs through Element Finance pools, which are the markets on Element Finance’s platform, in order to seek a profit.

Element Finance’s PTs thus have many valuable use cases, and we are pleased to incorporate them into our isolated lending pools. Element Finance PTs are an ideal component to be used as collateral in a loan for a number of reasons; they can be redeemed 1:1 with the base asset, and their collateralization allows tokenholders to retain ownership of their PTs (and thus their underlying principal) while in the meantime being able to utilize a more prominent token, USDC, that provides them with more utilities and flexibility in the meantime.

Chisel Liquidity Vault Details and Benefits:

To ensure the continued availability of loans through our isolated lending pools, lenders are critical, and receive a yield in the form of an annual percentage yield (APY) for fulfilling this important role. However, we recognize that lending into a multitude of isolated lending pairs can be a time-consuming process, as lenders must deposit into each pool individually. This also requires lenders to manage their own exposure in these pools.

To make this process more streamlined, we are thus creating a Liquidity Vault, Chisel, that allows lenders to provide funds into a group of isolated lending pairs, accomplished through just one deposit. This allows for users to make diverse investments in a streamlined manner.

In addition to saving users the time and effort that was previously warranted in depositing into multiple pools, Chisel also serves financial benefits; it enables users to essentially create a portfolio of deposits spread across different lending pairs with different risk and return characteristics. As a result, lenders can simply and easily maintain broad exposure to a number of different digital asset pairs, with different risks and different APYs.

Expanding Warp with Additional Features:

In addition to opening up our isolated lending pools to custom pool creation, we also plan to add advanced features to the Blacksmith Upgrade in the coming months, including:

  • The ability of users to create their own lending pairs
  • The creation of pool-based lending pairs
  • The ability for users to use L2 assets as collateral on L1

Overall, the Blacksmith Upgrade is an important step forward in our mission to improve the DeFi lending space, and our test launch will serve to prove its usefulness while also helping us ensure we are providing the best offering to our users.

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