Dialogue with Solv co-founder Meng Yan: Innovation is a form of value investment

Original Title: "Interview with Meng Yan, Co-founder of Solv: Innovation is a Value Investment"

Source: Web3 Character Chronicles

Can you briefly introduce yourself?

Hello everyone, I am Meng Yan. Co-founder of Solv Protocol, co-author of the ERC-3525 token standard, currently mainly responsible for the development of the ERC-3525 ecosystem, with research interests including structured finance on pure chains, programmable payment networks, digital certificates, and account abstraction.

Since joining the blockchain field in 2015, I have been engaged in the dissemination, training, and consulting of blockchain knowledge until I founded Solv in 2020. In 2019, I was fortunate to be recognized as one of China's top ten blockchain educators. At that time, I focused on the dissemination, preaching, and research of token economics, achieving some small accomplishments.

I gained widespread recognition in the domestic blockchain community for proposing the translation of the English word "token" as "通证" and advocating for in-depth research on token economics. I established a theoretical framework for token economics early on, thus gaining a certain influence in the community. I have also been invited to well-known universities in China, such as Tsinghua and Peking University, to communicate and teach relevant knowledge systems and information to students.

Can you share your entry into the blockchain space?

I believe I have three experiences of entering the blockchain space. The first was in 2015 when I was working at IBM. That year, IBM underwent significant changes, with Indian-born technology expert Arvind Krishna replacing the esteemed John Kelly III as the head of IBM's technology and research. Shortly after taking office, he announced the inclusion of blockchain in IBM's global technology strategy, which had a profound impact on me. Such a bold reform could be seen as a criticism of the previous strategy. Why was there such an urgent need to change the strategy? I became interested in this decision, so I delved into blockchain and was deeply fascinated by it.

I was originally one of China's earliest smartphone software development engineers, later transitioning to the field of corporate strategic communication, and learning about politics, economics, finance, and other areas. Combining my technical background with this knowledge, I found that blockchain and digital currency aligned very well with my interests, even though it was just a hobby or professional direction at that time. I wanted to work in blockchain, so I spent my spare time studying cryptography courses from Stanford and the University of Maryland, as well as specialized courses on Bitcoin and cryptocurrencies from Princeton University.

In April 2017, I entered the space for the second time, deciding to leave IBM to work full-time in blockchain and AI-related fields. Initially, I was involved in both areas, but by August 2017, I decided to focus entirely on blockchain. In the first few years, I mainly engaged in dissemination, preaching, training, and consulting, achieving good results that continued until 2020.

During the pandemic, I had a rare breather to calmly think about my next steps. In my previous work, I often traveled for business, attending meetings almost every week, leaving little time to think and explore new things. But in 2020, I had time for reflection and realized I should create something new. So, in October 2022, I co-initiated a new project called Solv with my partners. This was my third entry into the space, as I had previously mainly engaged in preaching and related work in the blockchain field, and this time I decided to fully immerse myself in the blockchain domain. This decision made me feel a shift in roles, requiring extra courage and determination.

Our project initially aimed to create a new type of financial application NFT, named "Financial NFT." We realized that existing token standards like ERC-20 and ERC-721 could not meet our needs for financial NFTs. Therefore, we decided to develop a new token standard ourselves. Thus, starting in October 2022, we put in 23 months of effort, and by September 2022, our token standard was finally approved by the Ethereum community and core developers, becoming an industry standard and was named ERC-3525.

Core Content: The first entry into the space began in 2015 when I was working at IBM, where the company underwent significant changes by introducing blockchain technology as one of its strategies. I developed a strong interest in this and delved into related knowledge, hoping to transition into blockchain. In 2017, I entered the space for the second time, leaving IBM to focus on blockchain work and continuously developing in this field. Finally, in October 2022, I co-initiated a project called Solv, aimed at creating a new type of financial NFT and developing a new token standard ERC-3525, which was approved by the Ethereum community and core developers, marking my third full immersion into the blockchain field.

Can you elaborate on ERC-3525 and Solv?

ERC-3525 is a new type of token standard, and the tokens created under this standard are semi-fungible tokens, abbreviated as SFT, corresponding to NFTs. Initially, we planned to create financial NFTs, but during the development process, we found many areas for improvement in this field, gradually forming the SFT standard, which underwent four major revisions before being approved in its fourth version and becoming an industry standard.

So, what exactly does ERC-3525 do? In simple terms, ERC-3525 is used to express digital bills, a term that exists in Chinese but has no direct equivalent in English. Digital bills are extremely common in life and business, including invoices, receipts, bills, promissory notes, rental contracts, and more, as well as some non-financial bills like vouchers, coupons, discount cards, and membership cards. In the financial and business fields, they are even more common, such as commercial acceptance bills, bank acceptance bills, bills of lading, warehouse receipts, delivery orders, letters of credit, and even cash and stocks can be seen as a form of bills. There are also more complex structured assets, such as options, futures, asset-backed securities, CDOs, MBS, etc.

At the end of 2020, we found that there was no standard in the entire blockchain field to express digital bills. Therefore, we decided to take matters into our own hands and develop a new token standard, namely ERC-3525, also known as SFT, to express digital bills. This standard has the following characteristics: First, unlike ERC-20, it is visual, similar to NFTs, and can have a face with rich information. ERC-3525 can better express complex financial bill information, such as maturity dates, interest rates, and payment plans, making it more intuitive and artistic.

Second, it can be split, merged, and calculated. Like NFTs, it can display a lot of information, but unlike NFTs, ERC-3525 has the feature of being freely splittable. For example, you can split a bond with a face value of 1000 into one with a face value of 700 and another with a face value of 300, which is beneficial for financial calculations and transactions. Third, it is a container that can package various other assets. You can bundle different types of assets like Bitcoin, Ethereum, BNB, etc., into the same ERC-3525, enhancing its inclusiveness and packaging capability. Additionally, as a container, it can independently receive and process asset transfers without needing to go through wallets or smart contracts.

The final advantage is its combinability, allowing multiple ERC-3525 tokens to be combined into a larger portfolio, further increasing its application flexibility and diversity. ERC-3525 is a highly flexible token standard that can package other assets and combine with other ERC-3525 tokens to form larger structured and financially structured assets. This makes it a very powerful industry-level token protocol, particularly adept at expressing and processing complex financial assets like bills.

As the technical inventor of the Solv team, we see that the application space for this protocol is almost limitless. However, we cannot create all applications at once; we need to choose a clear direction and create one or two exemplary products to showcase the advantages and characteristics of ERC-3525. By taking the lead in demonstration, we hope to attract more partners and developers to use ERC-3525 to develop various applications, whether in gaming, finance, or social aspects. We hope that the products we create are not just for show but are truly capable of solving problems and creating value. Our goal is to provide genuinely valuable applications in the market and contribute to the development of the entire blockchain ecosystem.

In the Solv team, we have developed three products, with the first two being exploratory in nature. We are now primarily focused on an active fund management platform. An active fund is managed by a fund manager (which can be a real person, a robot, or an algorithm), and investors (including institutions and retail investors) can purchase fund shares to invest in the fund manager. Once the fund manager receives the funds, they can actively invest and manage the funds, distributing the returns to investors, similar to traditional funds we are familiar with.

However, in the blockchain field, active funds face some security issues, such as improper behavior by fund managers that could lead to investor losses. To address these issues, we have built a robust risk control system to ensure that fund managers comply with risk control requirements while operating the fund, safeguarding the safety and interests of investors.

In traditional industries, funds can generally be divided into two categories: decentralized passive funds and active funds. In blockchain, decentralized passive funds are automatically managed by algorithms, allowing investors to collateralize their funds (such as Bitcoin, Ethereum, or USDC) in Compound, and the algorithm calculates returns based on pre-set rules and automatically allocates them to investors. The returns of such funds are usually not high, with rates of a few tenths of a percent being common. Recently, the issue of inverted interest rates on U.S. Treasury bonds has further reduced the returns of such funds. Active funds, on the other hand, are managed by a real person or quantitative algorithm that actively adjusts positions to seek higher returns. However, these funds have some security risks, such as improper behavior by fund managers, running away, or engaging in irregular trading, which could lead to investor losses.

To solve these problems, a complete risk control security system needs to be built. This risk control system must ensure that fund managers use strategies to achieve higher returns while also ensuring the safety of the fund's capital and risk control. In this process, transparency and monitoring are crucial, and emergency measures, such as redemption or liquidation, need to be in place.

The product launched by the Solv team is an active fund that went live on March 20, 2023. Through our robust risk control system, we can allow quantitative teams, market makers, and skilled investment managers to issue funds on our platform and raise capital from institutions or retail investors. These fund managers can achieve higher returns through active investment strategies while we conduct strict risk control and monitoring to ensure the safety of funds and protect investors' interests. Thanks to the successful establishment of our risk control security system, our product has achieved significant results in the DeFi protocols during the bear market, likely ranking in the top ten.

Core Content: We have developed a new token standard, ERC-3525, abbreviated as SFT, to express digital bills. This standard features visualization, splitability, mergeability, containerization, and combinability. Currently, we focus on a product called "active fund," ensuring the safety and interests of investors through a robust risk control system. Our product has achieved significant results in the blockchain industry, ranking in the top ten among DeFi protocols.

What is your most memorable experience in Web3?

My perspective on blockchain and digital assets is closely related to my personal experiences. I focus on innovation, viewing innovation and entrepreneurship as value investments, while being very cautious of speculation and hype. This perspective is mainly the result of two experiences.

First, after entering the blockchain industry, I went through a cycle of highs and then losses. At that time, I invested in Ethereum and caught a significant appreciation at the beginning of 2017. I thought that if it rose this much more, I would achieve financial freedom.

However, the ICO boom of 2017 put me in a euphoric state, and I invested in many projects, some from entrepreneurs with prestigious backgrounds, teams from Google, Tencent, and some mysterious hacker teams. Some projects even had endorsements from well-known industry figures. Like many others, I blindly chased these projects, only to lose all the money I had earned through Bitcoin and Ethereum in five to six investments.

From this, I realized that during a bear market, diversifying investments does not guarantee that any project will be profitable. Even resilient assets like Bitcoin and Ethereum experience fluctuations, and those with impressive backgrounds do not necessarily understand blockchain better or take the industry more seriously than I do. While they may have deeper backgrounds in technology and even achieved success in the Web2 realm, quality projects in blockchain and Web3 have unique characteristics; they emphasize community building and require an open community rather than focusing too much on the backgrounds of investors or founders, especially their educational backgrounds. It is crucial to clearly assess the speculative mindset of the other party.

Upon reflection, I found that many of these founders, in terms of their understanding and faith in blockchain, were not as persistent and dedicated as I was. They came to capitalize on the industry's boom and eventually gave up due to a lack of perseverance and a deep understanding of the industry, essentially behaving as speculators rather than true entrepreneurs. In contrast, many successful project teams do not have impressive educational backgrounds but possess strong hands-on abilities, deep insights, and a firm commitment to decentralization. This is, in fact, the root of value creation.

Secondly, over the years, I have made many friends from various backgrounds in the crypto space and observed their experiences. Although I cannot mention specific individuals or events, my long-term observations have led me to a profound realization: very few people can walk away unscathed from the casino, or in other words, consistently profit in the trading market. While some may earn huge wealth in the short term, like catching one or two meme coins or leveraging trades for high returns, they often boast about their philosophies during their glory days, which can be quite shocking, but at that moment, they indeed exude a sense of confidence that influences many, leading to a distortion of values. However, in the long run, the vast majority of these individuals do not become ultimate winners; they may go bankrupt during market volatility, end up in prison, or go on the run, with many gradually losing their money and exiting the stage.

I once envied those who made huge profits, but eight years of observation made me realize that speculation, especially bottomless speculation and market manipulation, is a game of nurturing poison. The vast majority of people will have their mentalities severely affected by the market's wild fluctuations, gradually losing rationality and bottom lines, entering into a mutually destructive game. This is not a career I want to participate in.

Thus, I underwent a significant change in my investment and wealth perspective. On one hand, I happened to read some classic books on value investing, which sparked my thoughts. Buffett has an important point about the so-called circle of competence. He believes that within this circle, one can potentially outperform the market. However, building this circle of competence requires long-term accumulation and learning to establish sufficient knowledge and belief.

So, I began to distance myself from speculation and focus more on innovation and entrepreneurship. I believe that through innovation, I can create value for the entire industry and community while also building my own circle of competence, and only on this foundation can luck come into play. Through persistent effort and deep understanding, I believe I can achieve more success in this industry. Therefore, I now invest more energy into innovation and entrepreneurship, viewing it as my own method of value investment, believing it to be a reliable path to wealth growth.

Now, I believe that one reaps what one sows. Wealth gained through luck is fleeting, while real wealth comes from one's own efforts and sweat. In fact, contrary to the views of the vast majority in this industry, I hold firm to my beliefs. Many people think the blockchain industry is about gambling and speculation, mocking me as a bookworm or a pedant. However, I pay little attention to these remarks. I choose a path that suits my character and beliefs, creating truly useful and valuable things for this industry and community through innovation and diligent work, while also building my own circle of competence and investing within it. In this industry, there may be relatively few people with my perspective, but I am unwavering in my beliefs and demonstrate them through my actions.

Core Content: My perspective is closely related to my experiences, becoming more cautious after ups and downs, no longer blindly following investment trends. I believe wealth comes from the circle of competence, from one's own cognition and abilities, rather than relying on luck. Innovation and practice are my ways of building my own circle of competence, and I only invest within that circle.

What do you think are the promising tracks for development in Web3?

I am very optimistic about the DeFi and public chain tracks. In particular, I believe that L2 and ZK have enormous prospects at the infrastructure level. ZK can achieve optional and controllable privacy protection while enabling almost unlimited performance expansion, which is a key technology for the future mainstream application of blockchain.

The second track I am optimistic about is account abstraction, which refers to smart contract wallets. This technology can make using digital assets and Web3 applications as simple, convenient, and enjoyable as using ordinary mobile applications, thereby reducing the difficulty for ordinary users to use blockchain and digital assets. This will attract billions of ordinary users into the blockchain industry's revolution, which I believe is a very promising track.

The third track I am optimistic about is RWA. This track involves mapping real-world assets onto the blockchain, turning them into programmable digital assets that can be regulated and liquid. Through blockchain technology, these traditional offline assets can become more convenient, collateralizable, and tradable. I believe that in the future, tens of trillions of dollars of real-world assets will exist in the form of digital assets, which will become the largest, most sustainable, and far-reaching direction in the industry.

As for Web3 social, while I believe it also has enormous imaginative potential, I have not yet seen an ideal solution. I hope to see someone provide a convincing design framework that can reshape the internet's account system, traffic system, information sharing, and privacy protection. Although this track may develop in the future, I believe it may not appear quickly. Currently, there is still a lack of theoretical and academic research results in this field, requiring more time and effort to realize.

Core Content: I am very optimistic about the DeFi and public chain tracks, especially L2 and ZK technologies, which have enormous prospects at the infrastructure level for achieving privacy protection and performance expansion. Additionally, I believe that account abstraction and the RWA track also have great potential; the former can reduce the difficulty of using blockchain and attract more users, while the latter can map real-world assets onto the blockchain for regulation and liquidity. As for the Web3 social track, although it has enormous imaginative potential, it currently lacks ideal solutions and requires more time and research to realize.

What are your plans for the future?

My current focus is on the RWA track, because our 3525, as a digital bill, has rich applications not only in the crypto and digital asset fields but also in Web3 and pure digital asset domains, as well as in areas like gaming. Particularly in the RWA field, we have incubated a company that specializes in issuing digital invoices for real-world assets for central bank digital currencies and programmable stablecoins. This company successfully made it to the list of the top 14 projects in the Australian central bank's digital currency pilot project, receiving high praise. Of course, I am also very interested in the tokenization of government bonds, focusing on how to achieve the tokenization of government bonds in a compliant manner. This includes combining government bonds with stablecoins to make them more efficient with the support of 3525 technology.

The second area is digital certificates and programmable currencies. I have always believed that payments are the number one application scenario for blockchain. Musk once said that as long as blockchain can solve the payment problem, it is super useful. I believe blockchain payments have two advantages: first, borderless real-time settlement; second, programmability. The former has already been widely applied, needing to align with the progress of CBDC and RWA to enter the real economy and daily payments, while the latter is the most powerful super weapon for blockchain payments. We are also exploring how to use 3525 technology to express various qualification certificates, such as tickets, business licenses, permits, and qualifications. Even digital assets like invoices are, to some extent, also a form of certificates. I believe that ERC-3525 combined with digital certificates can become one of the best solutions for achieving a secure, open, and programmable currency system.

The third direction is account abstraction. We are exploring how to combine 3525 technology with 6551 technology to develop the next generation of smart contract wallets, providing richer functionalities and stronger capabilities.

The fourth direction is the environmental field, involving carbon emission control, waste plastic management, and garbage classification and recycling. These are all areas in the real economy that require strong support, and blockchain and 3525 technology provide very suitable solutions. These directions allow us to use 3525 technology in the expression and management of real-world assets, which is a very meaningful application scenario.

Core Content: I am currently focusing on the RWA track, having incubated a company that provides digital invoice solutions for real-world assets for central bank digital currencies and stablecoins. Additionally, I am interested in applications in digital certificates, programmable currencies, account abstraction, and environmental fields. These directions hold great promise in utilizing ERC-3525 technology to express and manage real-world assets.

What are your thoughts on attracting newcomers to the industry?

When it comes to attracting newcomers, I am more concerned about how to bring high-quality users and quality funds and assets into this industry. From my perspective, this involves two main aspects. One is responsibility. Some people, including some regulatory agencies, hope that the entire blockchain industry can engage in responsible innovation. This statement may sound harsh to many friends and may not be readily accepted, but I believe it is a very correct proposition. It is about innovating responsibly, meaning you need to consider what purpose you want to achieve with what you are doing. Are you trying to stimulate the greed and ugliness in human nature, exploiting human weaknesses, or are you promoting the strengths of humanity to contribute to society and the economy? I think this includes contributing to organizations as well. I know this sounds particularly mainstream, but it is my genuine thought.

If you had talked to me three years ago, I wouldn't have said these things because my understanding of this matter hadn't reached that level. Now, I sincerely believe that many people are aggressive and talk about how to make money and get rich quickly, while those who seem genuine and straightforward are often the ones who sell such personas, labeling those who talk about values as hypocrites. They tell you, "I'm very simple; I just help you make money." Many inexperienced people find such individuals sincere and naturally develop a sense of trust. However, after years of observation, I have found that these people are mostly frauds. I have hardly seen anyone who engages in this kind of behavior achieve particularly good results because they have first lost themselves.

Returning to this topic, I still believe we need to attract higher-quality users, institutions, and funds. From this perspective, I think the value proposition of Web3 is to return our accounts, data, and social relationships to each individual, which is a just concept. We engage in RWA to enhance asset liquidity, allowing small and medium-sized enterprises and individuals to obtain financial rights without relying on intermediaries like banks. These are all very just and positive goals, and we should strive to do these things well, attracting quality users, institutions, and funds into this industry for healthy and sustainable growth.

I want to emphasize again that those who appear aggressive and seem to revel in vengeance often do not have good outcomes. I have seen many such individuals and have envied them at times, even wanting to develop in their direction, but ultimately I realized that their endings are not optimistic. Some end up impoverished and in hiding, while others even end up in prison. I do not envy such lives, so I choose a more responsible, healthy, and sustainable development path, not because I have high moral standards, but based on my observations of the industry, which I believe is the right direction—hopeful and sustainable for growth.

Ultimately, our goal is to enhance asset liquidity, promote social and economic development, and provide more opportunities for small and medium-sized enterprises and individuals, allowing everyone to obtain their rightful financial rights. We hope to attract more responsible, visionary quality users and funds to jointly promote the development and progress of the entire industry.

Core Content: I am very focused on bringing high-quality users, institutions, and funds into this industry. Responsible innovation is important, considering the contributions to society and the economy. I believe the just concept of Web3 can attract more people to participate, enhancing asset liquidity and enabling small and medium-sized enterprises and individuals to obtain financial rights. Choosing a responsible and sustainable development direction is a wise decision. Ultimately, our goal is to make a positive contribution to social development.