With Defi composability, we are able to create strategies on top of each other, which provides the flexibility to create unusual products, but in many use cases, funds in fungible liquidity pools need not just flexibility but also customization, which led to a demand for non-fungible liquidity pools. That’s why some projects like Uniswap V3 are becoming using NFTs when ERC-20 tokens have a dominant existing presence and are superior in terms of fungibility and liquidity.
At the same time, we can foresee the demand for improving capital efficiency under the influence of the macro market. I believe NFT-IZATION for DeFi will meet these increasing demands around risk and position management. I’d like to recommend a Defi project Solv Protocol working on bringing financial NFTs into the Defi.
Solv Protocol is a decentralized marketplace for creating, managing, and trading vouchers — NFTs that can become semi-fungible with new ERC-3525 standard and represent financial rights.
Through the smart contract of Solv Protocol, digital assets like ERC-20 tokens and ERC-721 tokens could be embedded as vouchers, which are fractionalized for quantitative operations such as splitting and merging, thus enabling various financial scenarios which support the future of Financial NFTs.
Solv Protocol has raised a total of $5M in funding over 3 rounds. Their latest funding was raised on Feb 1, 2022. Solv Protocol is funded by 17 investors. Binance Labs and Blockchain Capital are the most recent investors.
Solv Protocol will collaborate with Binance Labs to launch non-fungible tokens on Binance’s NFT platform. Binance Labs portfolio of Web3 companies will be able to issue vouchers on Solv Protocol’s marketplace in order to seek additional funding.
Solv Protocol has partnered with over 30 DeFi projects, all of whom have minted their own Vesting Vouchers with underlying token assets. As of January 10, the TVL of Solv has reached of $260M.
Using Vesting Voucher for fundraising — A better mechanism than SAFT ?
In the primary market, A simple agreement for future tokens (SAFT) fundraising mechanism is used in many Defi projects, and NFT projects as well. SAFT encourage investors to lock tokens for a high rate of return. The mechanism works for the staunch supporters of projects but not for the more casual participants, which tends to cause the issue of trust between project owners and investors. More importantly, lock-up share lacks liquidity which causes the bull market can’t be circulated and swarm selling when it unlocks.
In order to solve the problems of lack of liquidity of locked asset and potential friction between investors and projects, Solv team has launched Vesting Voucher that is the first innovative product based on the original asset standard vNFT.
Vesting Voucher represents the contractual relationship between investors and projects. Vesting Voucher locks the investor’s token holding with an agreed release time and amount in an NFT (vesting types could be linear, one-time and staged), and automatically unlocked the agreed amount when the time arrives for the NFT holder, which makes the transfer of Vesting Voucher represents the transfer of investment shares, and the transactions are flexible by supporting splitting and merging.
NFT-ization For DeFi and Financializaiton for NFTs
Compatible with CeFi products, Defi protocols mimic most of CeFi services and optimize them based on blockchain’s unique qualities, such as asset exchanges, loans, leveraged trading, stable coins, etc. However, as the number of financial scenario requirements increases and is segmented, Defi needs more complicated products, like options and derivatives.
Lending project 88mph uses NFT to implement fixed-interest rate lending, insurance project Armor Finance uses NFT as its insurance token for coverage, the best-known exploration of Financial NFT is the LP token of Uniswap v3, Uniswap V3 made the upgrade from a Fungible Liquidity Pool to a Non-fungible Liquidity Pool.
On the other hand, as we know, the NFTs marketplace faces the problem of lacking liquidity, utility, and accessibility now. NFTs use-cases need more financial scenarios except for mainstream arts, collectives and P2E games. NFTs use-cases embrace financial scenarios such as collaterals, crowdfunding, renting, economic attribution, NFT DAOs, index funds, etc.
Some NFT projects adopt ERC20 tokens as a financial layer on top of NFTs to fungible the non-fungibles. F-NFTs (fractional NFTs) startups like Fractional art, NIFTEX, Liquid MarketPlace, LIQNFT, Unicly, and WithOtis are doing NFT financialization by using ERC-20. According to the Financial Times and Chainalysis, between February 2020 and November 2021, around 9% of the total group is responsible for approximately 80% of the NFT market value. In a market dominated by whales, whether fractionalization can be accepted by NFT supports and attract more trading volume and TVL? Market performance still needs to be tested.
What is vNFT?
Why Solv team creates a new token protocol instead of using ones that already exist? ERC20 can’t support information description capabilities, and ERC721 can’t do quantity splitting at the protocol level. Does it sound like we will talk about the Multi-Token standard? Unfortunately, ERC1155 does not support the splitting of non-homogeneous assets at the protocol level.
Solv team works to build vNFT — a token protocol used to describe Financial NFTs. vNFT offers quantitative operations for NFTs and is highly bespoke for ERC-20 tokens. vNFT can be regarded as an upgraded and enhanced version of ERC721, the difference is that ERC-3525 empowers NFTs with a new parameter named slot, along with a new parameter named units to represent amounts. But it’s not like building a new ecosystem, so we don’t need to rebuild the infrastructure to support it.
Vesting Voucher mentioned above is the first vNFT Solv created. It can significantly enhance liquidity for locked assets and has proved to be useful in numerous use cases across DeFi. Solv is launching ‘Convertible Voucher’ and ‘Bond Voucher’ as well.
The Convertible Voucher combines a zero-coupon bond and a price range by which the DAO offers a fixed yield. It helps DAOs to get liquid assets by leveraging native tokens while minimizing the risk of liquidation.
The Bond Voucher is a zero-coupon bond with an embedded call option that any project can use to finance its project or operations. The Bond Voucher allows debtors to leverage credit for under-collateralized loans and allows the investors to enjoy steady income and potential free upside.
Solv Protocol bridges the gap between DeFi and NFTs by offering financial NFTs and a marketplace designed specifically for operating financial NFTs. As an innovative project with great potential for development, it aims to unlock more financial use cases and build a better financial NFTs ecosystem.