Solv V3: Reforming Decentralized Liquidity Infrastructure
Solv V3 provides the definition, management, and settlement of on-chain fund products, allowing any funder to define and create investment certificates as easily and intuitively as creating NFTs.Author: Solv Chinese Community
Solv Protocol was established in October 2020 and proposed the original token standard ERC-3525 (SFT), aiming to tokenize various future cash flows, thereby bringing a new asset class to the industry. In September 2022, ERC-3525 was officially approved as a formal standard by the Ethereum official community, with over forty development teams currently developing products based on it. Most of these teams are using SFT to package future cash flow assets, including royalty income, salary income, protocol income, membership vouchers, and more. As the original team, Solv has built the infrastructure for SFT minting, issuance, and trading, and launched a series of SFT products and services.
In April 2021, we officially launched Vesting Voucher (Solv V1), serving a total of 64 projects to help them manage their quotas. In March 2022, we officially launched Bond Voucher (V2) to build the industry's first on-chain bond market, achieving over $100 million in bond issuance and trading volume, with a total of 20,000 SFT minted and over 17,000 unique SFT interaction addresses.
In March 2023, we officially launched Solv V3, a liquidity infrastructure serving the entire industry. This product will provide a unified, reliable, and transparent fund product issuance platform for the industry, helping fundraisers achieve efficient capital circulation through the issuance, management, and settlement of on-chain funds.
Solv V3 mainly consists of two modules:
Module One aims to lower the threshold for on-chain fund issuance.
Solv V3 provides the definition, management, and settlement of on-chain fund products, allowing any fundraiser to easily and intuitively define and create investment certificates, just like creating NFTs. Meanwhile, the management and settlement of products can be achieved through payments, withdrawals, and split transfer transactions targeting SFT.
Module Two aims to ensure the safety and controllability of funds.
The backend custody of fund products is integrated. Fund managers can operate the raised funds in a secure and trustworthy environment and standards, achieving self-verification. This capability allows fund managers to obtain tens of millions of funds even without posting any collateral.
Such products will:
Allow fund witnesses to freely create any type of financial product and manage it at a very low cost. This includes fixed-income products, floating yield products, money market funds, primary investments, quantitative funds, index funds, and even on-chain REITs products.
Allow investors to participate in more Alpha opportunities. The extremely low cost of fund creation makes previously inaccessible Alpha returns available to a large number of market users. Each user can simultaneously invest in and hold dozens of wealth management product SFTs.
Provide investment users with powerful backend fund monitoring capabilities and investment position management capabilities. Through panel functions and custody functions, users can intuitively monitor the status of funds and influence the usage rights of funds at critical moments.
Solv V3 has integrated Gnosis Safe, Cobo, Enzyme, and several custodial institutions including Ceffu and Copper. SFT, as an investment share, can also be recognized in Metamask and Debank. In the future, it will be possible to obtain additional liquidity from many collateral lending platforms. An extremely efficient and transparent liquidity market will form around Solv V3, creating a unified and reliable liquidity distribution layer for the industry.
Module One: Definition, Management, and Settlement of Fund Products
Solv V3 mainly provides the following functions:
Fund Issuance: Fund managers can issue generalized funds in Solv V3 with customizable subscription and redemption policies, fee standards, investment strategies, and other parameters. The core information of the fund will be recorded in a smart contract.
Fund Purchase: Investors purchase funds and receive fund SFT as a share certificate.
Fund Trading: Fund SFT can be traded in the Solv Marketplace and third-party NFT markets.
Fund Settlement: Automatically calculate the fund's net asset value and handle the redemption and distribution of earnings through smart contracts.
Fund Custody: Solv integrates centralized and decentralized custody infrastructure and provides customized custody services to ensure that funds are used under controllable conditions, ensuring fund safety.
Fund Monitoring: Solv integrates APIs from third-party on-chain data platforms and centralized exchanges to help investors monitor the status of fund usage.
A typical application scenario for on-chain market makers raising funds is when Market Maker A wants to raise market-making funds on Uniswap V3. The funds raised through Solv V3 will enter a Gnosis Safe multi-signature account co-managed by Market Maker A and Prime Broker, with Cobo Argus limiting A's fund usage to specific high-frequency operations. Investors receive SFT and can obtain liquidity through transfer transactions of SFT. Upon maturity, A will settle earnings through smart contracts, and all investors will receive earnings through SFT. The specific process of this scenario is as follows:
Smart Yield is the core concept we designed for Solv V3:
The premise of selecting yields is to ensure fund safety. By integrating custody services and fund monitoring systems, we ensure that funds are used under safe and controllable conditions, and are fully open and transparent, significantly reducing counterparty risk and increasing investor confidence.
Provide flexible strategy choices with a flexible and combinable product architecture, allowing market makers to adopt diverse strategies and use funds in DeFi, CeFi, and even TradFi, providing returns higher than the DeFi average.
Further enhance liquidity through interoperability with the open crypto ecosystem. Based on the composability and interoperability of SFT itself, users can flexibly operate fund positions to obtain liquidity, including collateral lending and early trading of SFT.
For more design concepts of SFT liquidity pools, please scroll down to the appendix.
Module Two: Backend Custody and Monitoring of Asset Management Products
The custody solutions we currently certify and support include Gnosis Safe, Ceffu, Cobo, Enzyme, Copper, and others. Fundraisers must accept our cooperative custody solutions to obtain funds. We have previously had practical application cases on these platforms. Here we will provide an example to describe how fundraisers can obtain and manage funds under custody, and how users can monitor the usage of funds.
Alice is an asset management manager who is very skilled at interval market making on Uniswap. When issuing this product, she needs to set up product parameters in Solv V3 in advance:
Information description about this fund product, including name (let's call it Degen Alice 01), strategy, backend custody solution, cycle, expected yield, etc.
Set up the Cobo multi-signature wallet address, find a trusted third party to co-manage this address, and set up operations that require pre-whitelisting (once set up, these operations can be performed without permission).
Once the setup is complete, the fund shares can be officially issued. The raised funds will be operated in the multi-signature wallet according to the previously agreed method. If additional operations are needed, they will require multi-signature approval. Upon maturity, Alice will withdraw funds from the multi-signature wallet back to Solv's smart contract. All holders of the fund quota can proportionally withdraw funds.
From Bob's perspective as a purchaser, holding Degen Alice 01 will allow him to have a panel to monitor Alice's fund net asset value status. For example, if the initial net value is 1, the final settlement might be 1.2. This indicates that Alice ultimately generated a 20% return. At this point, Alice needs to pay Bob the agreed yield, say 8%, corresponding to the principal and earnings to Solv's smart contract.
Next Steps
We will officially launch the V3 testnet and mainnet products on March 21. We previously launched the Beta version in February and completed internal testing.
Between February and April, we will support fund managers in creating fixed-income fund products, structured products, and equity funds.
We will initiate a whitelist activity for fund managers during April, lasting for two months. The main purpose is to select high-quality fund manager seed users.
In Q3 & Q4, based on extensive feedback from fund managers, we will launch the V3.1 product and consider initiating economic model incentives and DAO governance frameworks thereafter.
Appendix: Liquidity Pool 2.0 ------ SFT-based Liquidity Pool
The mainstream model of DeFi is to build unified liquidity pools based on ERC20. Liquidity pools built on SFT are more suitable for the scenarios of Solv V3.
When fundraisers create wealth management products, they essentially build a feature-rich liquidity pool, where users can invest funds into this open liquidity pool at any time by purchasing investment certificate SFTs. Sometimes fundraisers may also set specific time periods for accepting fund inputs; in this case, the liquidity pool is a closed liquidity pool.
We are developing new features to support more powerful liquidity pools, such as allowing investors to set redemption dates in advance before investing in the liquidity pool, enabling SFT issuers to consider these redemption requests in advance for flexible term matching of funds. In this case, the metadata of SFT needs to add a content field for the redemption date. As shown in the figure below:
It is worth noting that because SFT and FT have the same homogenization capability, we believe that as the volume of SFT grows, AMM models based on SFT will emerge. Overall, the composability and liquidity capabilities of SFT are not inferior to Fungible Token ERC20, but its customization features are much stronger.
