Today our friends at Aztec Network have launched an integration of Element Finance’s fixed rates purchase and redemption transactions, with the zk.money privacy dApp, through Aztec Connect bridges. The sight of these DeFi lego pieces coming together to bring the virtues of low-cost, private transactions for users of fixed rates is truly beautiful to behold.

You can check out our previous blog post for more context on what this integration means for the Element Finance Protocol and its users.

Essentially, this integration tackles two of the challenges that many users face when using Element’s fixed rates on Ethereum Mainnet:

Challenge 1: Transaction fees

In the current landscape, users who invest less than 1,000 DAI in fixed rates directly through Ethereum L1 would see most (if not all) of their fixed rate returns eaten up by gas fees. By bringing gas costs down, this integration allows deposits as low as 300 DAI to be profitable. This example considers a gas price of 20 gwei and ETH price at $1,200 USD, for making both transactions needed to purchase fixed rates and to redeem them at term maturity:

It’s important to recognize that due to current market conditions, gas prices and trading activity on Ethereum are low. Aztec’s scaling solution shines much more during times of higher activity (e.g. bull market) because transaction fees can be split among more users.

Also of note, in recent bull market cycles gas prices were closer to 100 gwei on average and ETH was priced over $2,500. Under those conditions, a user on Ethereum L1 would’ve had to invest at least 9,000 DAI to take a profitable fixed rate position. Thanks to a higher usage and trading volume during those times, Aztec’s integration could easily bring that profitability barrier down by 10x.

Challenge 2: Privacy

Aztec offers a privacy solution that utilizes zk-SNARKS, a technology that is quantum resistant and ensures maximum security for users.

What’s next on Element’s scaling journey?

Element’s first step into L2 scaling includes the fixed rate market for the DAI stablecoin. This already unlocks the power of fixed rates for many users, but this is only the beginning. We’re looking forward to other potential use cases and hope many in the community will help toward these and apply for grants to the DAO, such as:

• Selling Principal tokens: This would allow for other profitable strategies such as rates arbitraging according to market volatility. Lower gas fees would lower the barrier of profitability.
• Minting Principal and Yield tokens: This would unlock Yield Token Compounding (YTC), which lets users get multiplied exposure to variable rates. Lower gas fees make these positions much more efficient.
• Providing Liquidity: This would let users take on more passive strategies around their fixed rate asset holdings, such as explained here, which are currently difficult to make profitable due to gas fees.
• Supporting other assets: Our first exploration into L2 scaling only includes the DAI stablecoin markets, but more assets can easily be supported in the future.

So how do you use it? It’s easy! In summary:

1. Deposit DAI into https://zk.money -> get zkDAI (privacy-protected DAI)
2. Buy Element’s DAI fixed rates using zkDAI (currently 4% fixed APR)
3. Profit

You’ll find a much more detailed guide below, but don’t hesitate to reach out on our Discord server if you need any help!

ZK.Money + Element walkthrough

Anyone can enter a fixed rate position on Element Finance Protocol with low transaction costs and full privacy through zk.money by going through the following steps:

• Go to https://zk.money and click on Log In

Note: Aztec uses technology based on zk-SNARKS to maintain accurate balances of the users’ assets, while shielding them from prying eyes.

You can choose to have your transaction be sent through a Slow method or an Instant method:

• Slow: Your transaction will be included in the network’s next batch. This means you’ll have to wait until the next batch is sent (typically a couple hours), but it will also split the fee among all transactions included.
• Instant: You’ll pay for this batch of transactions to be sent instantly. As a bonus, other users’ transactions that were already in the batch will also be sent with yours!

You’ll now have to wait until the batch is sent for your shielded assets to be usable. If you chose the Instant option earlier, it should just take a few minutes. The Slow option should take a few hours.

You can now head on to zk.money’s Earn page, where you’ll find the UI to deposit your zkDAI in Element’s DAI term.

The next screen will also let you choose your transaction speed. The Batched fee will require a wait time but it’s the option with the lowest cost and maximum profitability.

Finally, you’ll get a confirmation screen which details the returns you’ll obtain at the end of the term, and you’ll be able to see the positions you’re currently entering or already entered.

That’s it! You’ll now be earning a fixed 4% APR on your DAI, while retaining low transaction costs and privacy over your positions. Once the term matures, you’ll be able to redeem your earnings through zk.money as well. Happy investing!