A Time to Heal: Binding DeFi’s Wounds and Moving Forward

Solv Protocol Team
7 min readAug 10, 2023

Last week we brought together an insightful panel to discuss the current state of the market and the future outlook for the crypto space. Our esteemed guests included Darren, Investment Manager at Bing Ventures; Ryan, General Partner at Blockin; and Jing Xiong, Partner & Head of BD at Solv Protocol.

As one of the largest investors in Blockin-GMX-fund, Darren shared Bing Ventures’ rationale for investing and views on the market. As the fund manager of this top-performing fund, Ryan offered Blockin’s unique quant trading perspectives on generating real yield and the industry’s future direction. Finally, Jing Xiong discussed how Solv is developing a robust risk management system to safeguard platform funds and user assets.

If you missed the panel, we have the recap for you here.

The recent Curve exploit was deeply concerning. What are your thoughts on this incident and how DeFi projects can better prevent such risks going forward?

Darren:

More awareness is needed of security issues. Better auditing of smart contracts. Improve token distribution and governance models to be more decentralized.

Jingxiong:

The Curve exploit demonstrates a difficult vulnerability to solve completely, though secure coding practices, audits, and better frameworks can reduce risks. As DeFi is still nascent, the community must collaborate to fix issues and drive progress. The silver lining is everyone coming together to strengthen DeFi despite its imperfections.

Ryan:

The Curve exploit highlights unavoidable growing pains in the nascent crypto and DeFi industry. Issues like the compiler vulnerability will be resolved through consensus and maturation over time, as seen in traditional finance. This makes the industry stronger.

Regarding Curve’s token distribution, the token itself does not have governance rights, so the protocol is reasonably decentralized. While Michael’s large loans against his tokens raise questions, on-chain transparency is better than alternatives. There is room to discuss tweaking parameters to limit concentration risk, but Curve’s transparency remains a positive.

How does Solv ensure user funds are secure on your platform? Can you elaborate on your risk management capabilities?

Jingxiong:

Solv has built a comprehensive risk management system by leveraging the strengths of our ecosystem partners. This includes capabilities like asset screening, decentralized MPC custody, and liquidation. Many competitors rely solely on external tools and parties, but Solv takes a more integrated approach. We have strong in-house capabilities to handle critical functions ourselves rather than fully outsourcing them. This allows us to ensure robust systems so users don’t have to worry. For example, if liquidation is required, we can perform it reliably in-house. Risk management is taken very seriously at Solv, and having these top-notch internal capabilities is a key differentiator for us. While others take more fragmented approaches, we pride ourselves on building the most secure and reliable solutions possible through our integrated risk control system.

Could you briefly introduce Blockin? As the fund manager for GMX fund, how does your quant trading strategy differ from existing approaches to generate yields in DeFi?

Ryan:

Blockin Capital was founded after the 2020 DeFi summer boom. I experimented extensively with top DeFi protocols at the time, which led us to launch a DeFi hedge fund to capitalize on opportunities. Our core team consists of experienced quants, engineers and data analysts. We focus on leveraging blockchain data analytics and quantitative strategies to identify edges in DeFi markets.

We invest significant time getting to know protocol teams intimately before allocating capital. For example, before investing heavily in GMX, we met their team, reviewed codebases and interacted with the community. Prior to the launch of GMX V2 yesterday, we had already closely communicated with the GMX team and extensively tested GMX V2 on the testnet.

Managing risk is also key. Take GMX for example, we’re on the counterparty side of traders and many say it’s easy to just hedge all the OI exposures. But in reality, executing that is not as easy as it seems. You need a strategy and trading system to support it. So for hedging positions on GMX, Uniswap LPs, etc, we have automated trading and PnL tracking systems. We don’t hedge on an ad hoc basis — everything is script based, combining on-chain data and trading platforms.

We focus on capacity, risk management, and conservatism to survive bear markets. We aim for quality over quantity of returns. After 2 years of running the fund full time with our own capital, we haven’t had major losses due to our cautious approach.

How Solv identifies and onboards excellent fund managers like Blockin? What is the process for screening and bringing on quality fund teams?

Jingxiong:

At Solv, we thoroughly vet all funds and managers before onboarding them — with Ryan’s fund, we spent substantial time evaluating his team, strategy, and risk management. We structured his fund to empower trading while safeguarding capital by allowing trading autonomy but no withdrawal ability. We implement robust tracking for transparency and oversight to monitor activity and intervene if needed.

Our goal is to reassure investors their capital is secure by providing controls so they understand what’s happening and trust their returns are protected. Now that safeguards are in place, I’ll hand it to Ryan to outline his strategy as we’re excited to onboard him after vetting.

What led you to invest in GMX Fund? From your perspective, why do you see it as an attractive addition to your portfolio?

Darren:

There are several key reasons. First, we trust Solv team and their expertise in risk management from working with them over the past 1–2 years. Second, the fund’s 20%+ historical returns with delta neutral arbitrage strategies are compelling compared to 7–10% yields on stablecoin lending. The arbitrage focus helps minimize systematic risk. Third, Solv conducts rigorous due diligence on fund managers like Ryan to ensure they have the skills to safeguard capital.

In summary, it’s the combination of the fund’s proven track record, strategic advantage in arbitrage, and Solv’s robust risk management approach that gives us confidence to invest. We believe in the team and their ability to generate strong risk-adjusted returns for investors like us.

What’s your perspective on DeFi yields overall? Where do you see real, sustainable return opportunities? Any concerns around risks?

Ryan:

The crypto bear market has led to questions around where real yields in DeFi come from. During the bull market, speculative strategies worked well, but now there is lower volatility and trading activity. We focus on proven protocols like GMX and Uniswap where fees are transparent — trading fees, lending fees, liquidation fees, etc. At least we know where the yields come from, even if fees are lower than before. Protocols like GMX and Uniswap have clear fee structures. We’re comfortable investing there compared to more speculative plays.

Longer term, integrating real world assets into DeFi and leveraging composability can expand opportunities. Crypto is still tiny compared to traditional finance. DeFi brings programmability and composability that enables innovation, healthy leverage to boost yields, and new transaction rails. It may evolve from being called “DeFi” to more “on-chain finance.”

If we survive the bear market, the future bull market could be even better. Integration with existing systems and bringing real assets on-chain can help DeFi scale. We remain bullish on the space overall despite the challenges today.

Jing Xiong:

In traditional finance there is a base case for returns and yield — like the US Treasury curve. Crypto doesn’t have that yet. What various teams are trying to do is create sustainable returns where the source is transparent and trustworthy.

Two years ago we saw unsustainable high APY offers that didn’t last, especially in a bear market. Going forward there will be segregation between what works and what doesn’t. People will gather around strategies and protocols that generate sustainable returns with a clear runway.

There are a lot of smart people in crypto. At a certain point we’ll see more and more sustainable yields emerge as people focus on what works long-term rather than short-term gains. The space is maturing and shifting to sources of yield that have transparency and longevity.

What is Solv Tokenomics and any plan of incentives to community memebers?

Jing Xiong: The SOLV token has not yet been launched, so the tokenomics and utility features are still in development. However, community involvement through governance and decentralization will be a top priority. While the token launch timeline is likely next year, the goal is to strategically align incentives between users, the community, and the Solv Protocol ecosystem. This will be done by providing long-term utility and value to holders through features like governance rights, staking rewards, discounted fees, and more. After launching our new open-ended fund and V3 platform, we plan to expand into new strategies like LSDs, RWA, and arbitrage to meet investor demand.

As a bonus, open-ended fund investors will receive airdrops — the specifics are still being finalized but the duration of investment will factor in. The overall aim is to build a sustainable token economy that incentivizes and rewards the community.

About Solv V3

Officially launched in 2023, Solv V3 has pioneered the construction of a trustless fund infrastructure based on ERC-3525. It also achieved decentralized collaboration between trusted institutions to offer transparent, non-custodial DeFi risk control. It allows global investors to access varied, trusted crypto investments on one transparent and secure platform, and empowers excellent fund managers to efficiently raise capital and build on-chain credibility.

Join our community

Join our community to follow up on upcoming updates for documentation, dapp, and tutorials.

TwitterDiscordLinkedInTelegram (EN)|Telegram (CN)|RedditNewsletter

--

--

Solv Protocol Team

Decentralized Asset Management. Diverse Assets. Savvy Strategies. Optimal Risk Management.