Solv On-chain Credit System#1: EthSign
This article details the first of a series of efforts by Solv to build the first on-chain credit system for DAOs–starting with EthSign.
The Bond Voucher is the first crypto bond product that opens the door for countless DAOs to the world of debt financing, and, like the traditional debt market, a working credit system is necessary for the functioning of the debt capital market in crypto. This article details the first of a series of efforts by Solv to build the first on-chain credit system for DAOs–starting with EthSign.
EthSign has officially partnered with Solv Protocol in enabling issuers of Bond Vouchers to sign on-chain I.O.U.’s detailing the terms of repayment. DAOs issuing Bond Vouchers through Solv are required to sign the statement which explicitly indicates the issuer’s promise to repay the debt in the future.
Why Bond Vouchers Can Offer Attractive Returns
Using Debt Financing to channel capital to where it can create maximal value.
The vast majority of DAOs struggle to access consistent incremental fundings to accelerate growth or bootstrap protocol owned liquidity, and are often forced to absorb hefty liquidity mining costs to attract external funding. All the while, a large number of risk-averse investors are looking for sustainable investments with an annualized return of over 5%.
The obvious culprit of this is the fact that collateral financing dominates the DeFi lending. While the collateralized loan makes lending secure for the creditor, it creates an unreachable barrier for borrowers, particularly when the native tokens of the project seeking the loan aren’t liquid enough. Introducing credit allow creditworthy DAOs to overcome this barrier and access debt funding possibly through over or even under-collateralization.
To achieve this, Solv has designed and built an on-chain credit system that will service Bond Vouchers and provide a platform for DAOs to issue and trade convertible bonds. The new financial tool allows the capital in crypto to be channeled where it can create maximal value and resolves the the challenges posed by collateral financing in order to accelerate growth.
Ultimately, borrowers that are creditworthy can benefit from the new credit system through lowered financing costs and healthier balance sheets. A financially healthy project will lead to a higher token valuation, creating a win-win scenario for the project and tokenholders.
Solv × EthSign to Build an On-chain Identity Credit System
Solv’s Bond Voucher is designed to move a $120-trillion-dollar bond market from TradFi to crypto, unleashing the potential of DAOs through debt financing. It makes sense to start with EthSign because of the level of transparency it provides, which is crucial to building an on-chain credit market.
EthSign is a Web3 native agreement signing and execution platform. The blockchain provides open and transparent on-chain data, allowing us to not rely on an authoritative notary, as a promise can be proven directly on the chain by tens of thousands of nodes, and users can find or verify information directly from the blockchain.
For projects issuing bonds, publicizing a promise to repay is a move that will prove impactful for the entire crypto world, especially when the event of default reduce a project’s creditworthiness, and in turn result in a collapse of the community’s confidence in the project and even its daily operations. In addition, lesser creditworthiness can halt collaborations, which can further erode the financial future of the project.
The STRP Bond Voucher offering by Strips Finance has marked the first time EthSign was used to build an on-chain credit system pioneered by Solv.
Read Strips’ Promise to Repay here:
Solv uses a new Financial NFT product and on-chain data to build the first crypto bond nd the on-chain credit system to support it. Starting with EthSign, Solv is fully committed making bond issuance and transactions automated and permissionless. Stay tuned for our next piece that will dive deeper into the debt market pioneered by Solv.
EthSign is an e-signing platform that utilizes blockchain technology to offer a decentralized, customizable and transparent version of traditional signature service. EthSign aims to tackle data security issues caused by an over-reliance on centralized providers and build back trust in electronic signature services. With its Web3 technology(decentralized Identity, smart contract platforms and decentralized storage networks), the platform enables users to comment on, edit and access each version of an electronic agreement seamlessly and securely. EthSign is now planning to launch an execution platform called Smart Agreements. It will allow users to execute signed agreements via smart contracts based on predetermined conditions.
Solv Protocol is a decentralized marketplace for minting, trading and managing NFTs that represent financial rights. Solv offers the Vesting Voucher, an allocation management fundraising tool, the Convertible Voucher, a structured product allowing DAOs to leverage native tokens, and the Bond Voucher, the first crypto bond that enables DAOs to tap into the debt capital markets.