Ryan Chow · Follow
Published in · 7 min read · Oct 8, 2021
After months of research and closely working with hundreds of DeFi projects, I finally put my thoughts in order and started writing about Solv’s Vesting Vouchers and the potential values they bring to the users and investors. (Spoiler alert: there are quite a few!) We have officially collaborated with a dozen of DeFi projects to put our product to the test, and to this day we have reached $36M+ in total value locked (TVL) and 950 unique Voucher owners!
In this article, I will give a brief introduction of Vesting Vouchers, how they work, and I’ll try to explain why I believe they are a great solution to the challenges investors face in managing lock-up allocations, as well as how Vouchers could be an essential force in building a strong user community.
Imagine a non-fungible token (NFT). This token is programmed in such a manner that it can function as a safe box or a “container.” And you can securely lock or release your ERC-20 token asset in or from this safe box in accordance with a rule designed to fit your needs. Such a safe box is called a “Vesting Voucher.” (Think “safe box” as a voucher used for validating tokens vested in it.)
Once the rule is set that governs how many tokens there are and how and when they should be released, the “safe box” Voucher containing those vested tokens must execute that rule. The idea is that by coding self-operating Vouchers, Solv hereby created a permissionless and trustless lock-up allocation service that will immensely benefit the asset holders.
Here I want to mention one thing: maneuverability. Right now, Solv supports three types of release: block-by-block or linear release, one-time release, and periodic release. Beyond those, we also customize rules to cater to more sophisticated needs (such as using the oracle network for powering hybrid smart contracts).
One of the main goals of Vesting Vouchers is to completely upgrade allocations management experience with more even asset liquidity. And the following three characteristics of Vouchers will make sure the goal is met:
(1) Vesting Vouchers are transferrable. Thanks to their NFT-ness, anybody who owns a Voucher automatically has a right to its underlying tokens, as well as the right to retrieve them.
(2) Vesting Vouchers are tradable. All Vouchers are tradable on the DeFi marketplace such as OpenSea. It’s also entirely possible to put them up as the loan collateral (NFTfi or Taker) or a group of vouchers packaged and issued as ERC-20 tokens on derivatives platforms such as Unicly and DoDo.
(3) Vesting Vouchers are fractionalizable. Thanks to Solv Protocol’s original token standard with the feature of splitting and combining, Vouchers are supported by ERC-721 compliant infrastructures and are completely fractionalizable.
The answer to this question is that Vesting Vouchers is designed to be a one-stop DeFi solution to locking assets. Not only do Vouchers empower the users with the ability to implement time-based lock-up rules on tokens they own, but such tokens are also locked in Vouchers, which makes transferring assets a hassle-free experience.
We live in a time where the need for locking up assets is greater than ever.
I often think about a crypto developer I know who was under the suspicion that he and his team might abandon the project and betray their investors (a classic “rug pull” situation). To my mind, the best way for them to dodge the bullet is simply to lock up LP tokens into Vesting Vouchers. This way, they would’ve effectively won the trust without making a compromise on asset liquidity. A win-win situation.
Now, let’s dive into what I believe are the most important reasons why Vesting Vouchers matter today.
Lock-up Allocations
Solv’s Vesting Vouchers are perfect for a project’s allocations management, and in doing so, we can create an open, transparent, fraud-free on-chain OTC market for trading allocations. Every allocation holder will enjoy the asset liquidity brought about by Vesting Vouchers, and all investors will be able to acquire allocations at a very low cost.
Initial Voucher Offering (IVO)
A project may also adopt Vesting Vouchers for fundraising purposes. When doing so, the project would acquire fundings through the public offering of Vesting Vouchers. We may call this Initial Voucher Offering (IVO), though some prefer the name “pre-IDO,” suggesting that the fundraising happens before the project launches a token through a DEX. But, in fact, IVOs do not always have to precede IDOs, because selling Vouchers is the way to raise funds without triggering the secondary market. Generally speaking, IVO is great for raising money regardless of the funding stage the project is in.
Community Building
In the past, crypto projects have had a hard time maintaining loyalty from users largely because users were mostly trading spot tokens. Understandably, those users end up having few reasons to stick with one project, when they can shop around with no problem. The solution is Vesting Vouchers. With Vesting Vouchers, allocation holders are locked in for their positions with the Voucher acting somewhat like a promissory note, which would release tokens not immediately after purchase, but over a period of time. (It could be 3 months, 6 months, or 6 years.) This significantly delays users’ ability to “cash out” their tokens too early, and, as a result, transforms the often disengaged project-user relationship into a somewhat symbiotic one.
One of the reasons I’m proud of Vesting Vouchers is that for us, it unexpectedly unleashed a whole bunch of exciting ideas about what we can do next. I will briefly mention a few, as a teaser!
- Next month, Solv plans to launch a new species of Vouchers, which stipulates that asset holders’ right to claim vested tokens is conditioned only on the price of the token, not time. (It’s sort of like convertible bonds, but cooler!) The idea is that when the existing release rule is predicated on time, altering that would engender a whole new species of Voucher. This will mark our first move to truly diversifying unlock rules.
- Solv is enthusiastic about expanding the repertoire of lock-up assets beyond ERC-20 tokens. Our team is keen to be part of the world that sees not just ERC-20, but ERC-721 or even ERC-1155 tokens being vested and held in the Vouchers as underlying assets.
- More Voucher-inspired offshoots will be unlocked. Solv’s active communication with multiple NFT lending platforms is long underway, and so far we have received overwhelmingly positive responses. For Voucher-represented assets, we are also planning to issue ERC-20 tokens on derivatives platforms such as Unicly and DODO for people to get access to vouchers more easily!
To end, I will mention four aspects of the challenge faced by Vesting Vouchers right now and what we plan to do about them.
(1) Concerns regarding asset liquidity. For some projects reliant on strategic investors’ fund allocations, too much asset liquidity could actually be a bad thing. One of the downsides of too much liquidity is that investors always have an option of an exit, and that could seriously hurt projects that are reliant on a productive asset allocation that yields an ongoing return. Solv plans to test out a restrictive feature on Vesting Vouchers to temporarily curb users’ right to sell and transfer.
(2) Security concerns. Solv Protocol is designed to protect users’ assets. To further our commitment, we work closely with world-class blockchain security solutions to defend our users’ assets from external and internal risk factors. We are proud to say that our source code has successfully passed the audits by both SlowMist and CertiK, key blockchain security organizations, and is on schedule to be audited by a THIRD security network. We’ve also had Insurance Pools established on Unslashed and Tidal to give ourselves and our users extra reassurance.
(3) Compliance matters. Solv pays close attention to the applicable laws and regulations. The Vesting Voucher is designed to encapsulate certain underlying project tokens. It is smart contract-oriented rather than a financial instrument. The Vesting Voucher per se would not trigger regulatory issues related to security but the issuer of underlying project tokens from certain locations may obtain and submit the non-security legal opinion/memo under certain jurisdiction(s).
(4) Privacy concerns regarding allocation transactions. Investors — particularly institutional investors — have a great need for privacy during the transaction. Solv is looking to integrate its own ecosystem with neutral, anonymous third-party networks in order to ensure the highest level of protection is given over key data — such as closing costs and the identity of parties involved — throughout the entire transaction.
I wanted to take this opportunity to thank numerous partner projects of Solv Protocol for their invaluable input and continued support throughout all stages of Vesting Vouchers’ development. Through hard work, we have proved that from a cost perspective, Vesting Vouchers can grease the wheels of managing tokenized allocations for all parties. In a way, we are reaching for the impossible. We can’t wait to explore all the immense potentials Vesting Vouchers are set to unveil. Remember, there’s a place for everyone in Solv’s Seahorse Initiative — join us today!
You can follow me on Twitter anytime!
