Projects in any stage of development need funding in an evolving business environment. However, fundraising can introduce many complexities. Moreover, different fundraising mechanisms come with tradeoffs, while DeFi protocols and DAOs aim to optimize fundraising to achieve their goals. Various projects have emerged to cater to these demands.
Solv Protocol is one such attempt to provide an intermediation solution to fundraise for projects and DAOs. Solv offers a toolkit for creatively minting vouchers and a permissionless marketplace for trading and managing vouchers.
As the first reference implementation of Ethereum Improvement Proposal (EIP) 3525, Solv Vouchers are semi-fungible tokens under the ERC-3525 standard. To raise funds, projects and DAOs could issue Vouchers (collateralized with any ERC-20 or Non-fungible Tokens). These Vouchers are also called Financial NFTs, given their compatibility with the ERC-721 standard. As a result of this feature, Vouchers could be managed and traded on any NFT marketplace.
Solv has launched on Mainnet and currently supports Ethereum, BNB Chain, Polygon, and Arbitrum. The protocol’s native token, SOLV, will be issued to the public no later than Q3 2022. SOLV is used to capture the value of transaction fees and to enable community-led governance at a later stage.
Unlike many other projects, Solv has been discreet about its location and the team.
Our researchers gave Solv Protocol a final rating of 54.00%. (Note: We have not considered the tokenomics of Solv’s token in this rating). The breakdown of this rating is available at the end of this report.
PRODUCT & COMPANY DESCRIPTION
Introduction to Solv Protocol
Solv is a decentralized platform for creating, managing, and trading “Vouchers”. Vouchers are non-fungible tokens (NFTs) minted on the Solv Protocol. These Vouchers are based on the ERC-3525 token standard, allowing various scenarios to be composed (e.g., claim, split, transfer, and merge). Solv Protocol users could mint several types of Vouchers. Solv also provides a trading venue for Vouchers, the Solv Marketplace.
Solv Protocol’s smart contracts enable DeFi Protocols and Decentralized Autonomous Organizations (DAOs) to raise funds by collateralizing tokens (ERC-20 or NFTs). Upon locking up the collateral, the protocol mints Vouchers, which are semi-fungible tokens compatible with the ERC-721 token standard. Solv Vouchers can be sold in an Initial Voucher Offering (IVO) and traded on secondary marketplaces, including the Solv Marketplace.
Creation of Vouchers. Source: Docs Solv Finance
There are different types of Voucher Assets that could be minted on Solv Protocol:
- Vesting Vouchers: A type of Voucher asset that can be customized to be vested over time. Users could configure vesting vouchers to reflect three parameters: maturity date, amount of tokens, and vesting type. One of the primary use cases for vesting vouchers is managing token allocations. Additionally, these vouchers can be used to raise funds via Initial Voucher Offerings (IVO) and for community building.
Vesting Vouchers. Source: Docs Solv Finance
- Convertible Vouchers: A Voucher type that combines a zero-coupon bond structure and a price range for the native token that the user (typically DAOs) deposits. The DAO either settles the Voucher in a selected stablecoin or the DAO’s native token. The key benefits of this type of Voucher are that if it is settled as a zero-coupon instrument, the DAO does not have to divest its tokens, and there is no liquidation risk since the payout takes place at the settlement date.
Convertible Vouchers. Source: Docs Solv Finance
- Bond Vouchers: A type of Voucher that acts as a zero-coupon bond with an embedded call option to convert it into a predetermined amount of native tokens of the project/DAO issuing the bond Voucher. Alternatively, the investor can redeem the Voucher at face value at maturity. The party issuing the Voucher may have to over-collateralize the contract. Bond Vouchers could have risks similar to those seen in traditional financial markets.
Bond Vouchers. Source: Docs Solv Finance
- Instalment Vouchers: A type of Voucher still under development.
- Portfolio Vouchers: A type of Voucher still under development.
Solv Protocol is an attempt to improve the fundraising market for projects and Decentralized Autonomous Organizations (DAOs) using “Financial NFTs or NFTs “with quantitative operations.” A key differentiator of Financial NFTs from NFTs is that Financial NFTs give their owner the right to the underlying tokens, not any creative work. Solv utilizes the ERC-3525 token standard to solve the persistent problems in the current market. Being the proposers and the first reference implementation of the ERC-3525 token standard for semi-fungible tokens, Solv offers several benefits to users via Solv Vouchers:
- The ERC-3525 standard is compatible with ERC-721.
- This standard provides several composability features like token split and merge.
- Anyone could use the platform without any knowledge of coding.
While Solv is an innovative way of using the smart contract capabilities of Ethereum, the protocol is not fundamentally different from the Lending/Borrowing platforms in the market. Moreover, although there may be subtle differences, the ERC-1155 token standard offers similar technical functionalities.
The Solv Protocol is the first reference implementation of the ERC-3525 token standard. The founding team of Solv is credited as the proposers of the EIP-3525: Semi-Fungible Token Standard (this EIP remains a draft). The project has not published a detailed Whitepaper or a Litepaper. However, detailed documentation describing the project’s concepts and demonstrations to users is available. The documentation is written in plain English, and anyone can easily understand it.
Solv released its version 2.5 with the Initial Voucher Offering (IVO) marketplace release. Solv supports Ethereum, BNB Chain, Polygon, and Arbitrum. It also has a growing ecosystem of participants. Currently, the total value locked in the protocol stands at approximately $50 million.
Solv’s addressable market is significant and growing. In a broader sense, its market encompasses DeFi Protocols and DAOs. DAO Treasuries account for a relatively smaller market size among these two segments. However, from the standpoint of competition, it is understood that there are several innovative solutions that projects and DAOs could utilize to raise funds. The key strength behind the team is that they are the proposers of the EIP-3525 semi-fungible Token Standard, which is at the core of Solv Protocol’s technology.
The Solv Protocol app is launched on Mainnet. The product has shown market traction as evidenced by metrics like Total Value Locked (TVL) of around $50 million, about 40 partners, and voucher holders. The project’s Twitter highlighted its achievement as found in this Tweet. Interestingly, Solv has achieved these milestones without releasing a native token yet.
Based on our understanding, there are several success factors for the project. These factors are listed below:
- Solv appears to be a pioneer in the way it achieves its desired outcome using the ERC-3525 token standard.
- Strong funding partners back the project.
- Ecosystem partnerships.
MARKET CONDITIONS AND COMPETITION
The Decentralized Finance (DeFi) market segment has grown significantly over a short period. This growth trend is visible across several parameters, such as the number of DeFi protocols, the market capitalization of DeFi assets of over $33 billion, Total Value Locked (TVL) of over $160 billion, steady and robust investment flow into the sector, and growth of alternative Layer-1 networks.
Similarly, Decentralized Autonomous Organizations (DAOs) have emerged as a famous organizational structure. As per DeepDAO, the combined treasury of DAOs has reached $11.1 billion.
Lending platforms are a significant category within the overall DeFi ecosystem and rank only behind Decentralized Exchanges (DEXs) in terms of the total value locked. As of 25 April 2022, their combined TVL was ~$49.71 billion across all networks. NFT lending protocols also allow users to collateralize NFTs for a loan. These platforms have a TVL of $220.63k.
Solv is a collateralized lending platform at its core. Consequently, Solv is facing competition from many players. DeFi Protocols and DAOs can raise funds by various means. The available alternatives range from lending/borrowing protocols to structured product protocols.
There are several examples of DAO-targetted funding platforms.
Similarly, NFT lending platforms are emerging due to the popularity of the NFT market. E.g., Revest Finance, SYNC Network, and JPEGD. Note: Revest Finance suffered an exploit in March 2022 for $2 million.
Solv Protocol is a credit intermediation platform that targets DAOs and DeFi Protocols. The platform provides tools for users to mint Vouchers and a marketplace for transacting with them. Any project onboarded to the platform could mint Vouchers without coding. Projects can apply to its ongoing “Seahorse Initiative” via the website. Projects or DAOs raising funds via Solv Vouchers are obliged to settle liabilities to Voucher holders as per the terms stipulated in Vouchers.
Solv offers a primary market for Voucher issuances through Initial Voucher Offerings (IVOs). The Solv Marketplace is a secondary market for transacting Vouchers.
Solv Protocol charges 1.5% on any successful transactions executed on the platform.
The project is not entirely open-source yet. No public members are contributing to Solv’s GitHub.
Initial Voucher Offering (IVO) market and secondary markets for Vouchers. Source: Ryan Chow Twitter
The Bond Voucher is a specific product in Solv due to its operational mechanics. For instance, Solv implements three modules to ensure repayment; i) collateral, ii) third-party fund management, and iii) on-chain IOU signing an Eth-Sign agreement. The third-party fund management module could introduce risks since funds are escrowed in a multi-signature wallet.
Solv currently supports multiple chains, i.e., Ethereum, BNB Chain, Polygon, and Arbitrum.
Three different security audit firms have audited Solv Protocol (see table below). One finding highlighted by successive audits is the centralization risks in specific contracts (i.e., contracts with admin control). This risk is acknowledged due to the early nature of the stage of the project’s development. However, the auditors make recommendations to improve the situation of privileged accounts as the project progresses.
Additionally, Solv launched a bug bounty program with a maximum bounty of $50k on Immunefi. Solv has also purchased $1 million worth of coverage through the insurance platform Tidal Finance. The plan covered smart contracts deployed on Ethereum and Binance Smart Chain (now BNB Chain).
Solv Protocol has achieved most of the milestones from its 2021 roadmap. The roadmap has not been updated for the period beyond 2022 Q1 and Q2.
Solv Protocol Roadmap (published in August 2021). Source: Solv Protocol Medium
The project has not published team details in its public materials. However, other third-party sources indicate that Will Wang, Mike Meng, and Ryan Chow co-founded Solv Protocol. The co-founders have a very negligible online presence and appear to have also co-founded Unizon. There was no other record available on their past endeavors.
Co-founders of Solv Protocol.
Solv Protocol has not published details of any advisors. However, token allocation details from the project show that there is an allocation for Advisors (2% of the total supply).
General Comments on the Team & Advisors
The project has been uncommunicative about its team members. Nonetheless, project development has progressed in stealth. The co-founders are active on Twitter and have made appearances in podcasts.
LEGAL AND COMPLIANCE SPECIFICS
There is no clear publicly available information regarding the incorporation form of the Solv Protocol.
Over 17 venture investment firms back Solv Protocol. The project was also accepted into DeFi Alliance’s Accelerator program as a member of Cohort 5. Many other projects partnered with Solv to establish business relationships. E.g., Strips Finance, Yin Finance, Horizen, Unslashed Finance, Lootex, Bella Protocol, and Tidal Finance.
Investors of Solv Protocol. Source: Solv Protocol Website
Solv Protocol has not published details of any advisors.
KYC & AML
Anyone completing the whitelist with eligible KYC was able to buy vouchers in the Initial Voucher Offering (IVO). There were no other specific KYC requirements discussed. However, participants from several restricted jurisdictions are barred from participating in the Solv IVO.
The NFT market’s growth going forward continues to face legal and regulatory hurdles that touch on copyrights, intellectual property rights, ownership of the token vs. ownership of the content, and authentication.
The SOLV token will perform two utility functions in the protocol:
- Capturing the value of transaction fees in the Solv Marketplace,
- Enabling community-led governance.
The total supply of SOLV tokens will be 100 million. In December 2021, the project conducted an Initial Voucher Offering (IVO) by locking 1 million SOLV tokens inside Vouchers. Solv Vouchers are traded in the OTC, Solv, and Binance NFT markets.
Judging by the Solv Vouchers terms, it is expected that the Solv Protocol public sale could take place no later than 30 September 2022.
SOLV token. Source: Solv Protocol Medium
SOCIAL MEDIA AND VIRALITY
Solv’s Twitter is actively and professionally managed. Currently, its channel has 92.5k followers. The project has recently had bi-weekly Twitter Spaces to engage the community. The project co-founders are also active on Twitter.
Telegram and Discord channels are important social channels with a significant following. Solv’s official Telegram channel has 43k followers, and its announcement channel has 9.4k subscribers. 52.5k community members follow its Discord. Out of both, Discord appears to be a venue where management is relatively more active.
The project is not present on LinkedIn.
Solv Protocol has commenced a YouTube presence, albeit with very insignificant views. The project has made all its community calls available via YouTube. There are many other third-party podcasts featuring Solv Protocol or hosting its co-Founders.
RISKS TO THE PROJECT
The following outlined list of risks is not an exhaustive one. Some risks may be minor/not materialize. However, as the protocol grows, the presence of these risks may become more critical.
- Technical challenges: The crypto industry is still at an early stage where many experiments occur. Layer-1 infrastructure is still evolving. Technical challenges emanate from external as well as internal risks. Similarly, Solv is also based on experimental technology. For example, the EIP-3525 standard for semi-fungible tokens is still at the draft stage.
- Security risks: Smart contract platforms are frequently being exploited. As the value locked in platforms grows, it becomes an attractive attack target. There could be many exploit scenarios like multi-signature wallet compromises, smart contract vulnerabilities, and phishing attacks, to name a few. In the case of Solv, smart contract audits have pointed out certain risk areas, especially regarding the concentration of authority.
- Regulatory risks: This risk arises from a general uncertainty regarding the crypto space’s regulatory environment. This risk is common to most players in the industry.
Everything you see in this report is the aggregate result of an extensive research process carried out by a distributed team of researchers and crypto enthusiasts around the world. The process consists of 60 questions divided into three phases. Researchers are called to answer these questions about a project, while providing links or screenshots as evidence to support their answers. For every answer, they also provide a rating from zero to ten. The average of their ratings is detailed below.
Our researchers gave Solv Protocol a final rating of 54.00%.
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