Ren: Can You Keep A Secret?

Ren (for­mer­ly Repub­lic Pro­to­col) has been a sta­ple of our alt­coin port­fo­lio since incep­tion of the Moun­tains and Val­leys strat­e­gy. At the time of writ­ing, the price of $REN is on a run and impor­tant parts of the project made it to main­net. A good time to explain our con­tin­ued fas­ci­na­tion with this project.

On a quest to make the project’s promis­es more tan­gi­ble, Ren have changed their pro­mo­tion­al nar­ra­tive over time (but not so much the project’s inner work­ings). The cur­rent nar­ra­tive: trust­less cross-chain val­ue trans­fer and liq­uid­i­ty, is a good start­ing point to explain what Ren does and why the blockchain space needs it.

How to Bring Bitcoin To Ethereum

Over the past 12 months, we’ve seen a tremen­dous rise in liq­uid­i­ty on decen­tral­ized exchanges (DEX­es), and the most active DEX­es are on the most liq­uid chain, Ethereum. This pos­es a major chal­lenge: only ETH and Ethereum based tokens can imme­di­ate­ly be trad­ed on Ethereum based DEX­es. What if I want to hold part of my port­fo­lio in BTC or even ZEC, but trade on Ethereum? How do we bring val­ue on oth­er chains to Ethereum?

The Custodial Approach

Some­body, let’s call him Car­li Cus­to­di­an, decides to offer a “Bit­coin on Ethereum” ser­vice that works in a very sim­ple way: you send Car­li some Bit­coins. Car­li will keep those for you, and will in turn send a Bit­coin backed token called ccBTC to your Ethereum wal­let. You can then freely use your ccBTC on Ethereum, even send it to some­body else. If you want your native Bit­coin back, you send Car­li some ccBTC. Car­li burns those and sends the same amount of native Bit­coin to your Bit­coin wallet.

This naïve mod­el isn’t far from real­i­ty. Apart from an obvi­ous­ly more com­plex cus­tody sys­tem, cus­to­di­al Bit­coin tokens like WBTC work in exact­ly this way. While easy to imple­ment, this mod­el breaks the core promise of the blockchain: trust­less and per­mis­sion­less val­ue trans­fer. No mat­ter how refined the cus­tody sys­tem, Car­li can run with your native Bit­coins, ren­der­ing ccBTC worth­less. Or Car­li could, to the same effect, start issu­ing “unbacked” ccBTC tokens in great num­bers. We could catch Car­li by look­ing at his BTC hold­ings and the amount of ccBTC issued. But at that point in time, it would already be too late.

The Debt Based Approach

Anoth­er way to bring Bit­coin to Ethereum is to recre­ate it on Ethereum via debt. Some­body deposits a cer­tain amount of ETH, or of an Ethereum based token into a smart con­tract vault. This in turn allows him to “mint” a cer­tain amount of Ethereum based Bit­coin. A smart con­tract sys­tem, in con­stel­la­tion with the open mar­ket, ensures that any Bit­coin mint­ed in this way remains pegged to the price of native Bit­coin. The sys­tem also makes sure that the vaults used as a basis for the mint­ing process remain ade­quate­ly col­lat­er­al­ized. Syn­thetix works a bit like this. 

The debt based approach brings back the advan­tages of blockchain tech: it is trust- and per­mis­sion­less. But it comes at the price of quite a bit of com­plex­i­ty. It is also not very cap­i­tal effi­cient, as it typ­i­cal­ly requires about 150% of the val­ue issued to be locked in a vault somewhere.

The Multichain Approach

This approach comes clos­est to what Ren does, but it is not the same. To trans­fer val­ue between mul­ti­ple chains, an addi­tion­al blockchain can be estab­lished that — via its nodes — tracks val­ue on all involved chains and issues or redeems tokens as nec­es­sary. This is, gross­ly sim­pli­fied, what Cos­mos offers. The mul­ti­chain approach is promis­ing, as it allows much more than “just” val­ue trans­fer. It is also com­plex to estab­lish as it requires the cre­ation of an entire ecosys­tem around the inter­me­di­ate chain. Just like the cross­chain approach, the mul­ti­chain approach requires its own solu­tion to lock val­ue on one chain and issue it on another. 

The Crosschain Approach

What if we could lock up Bit­coin on the native chain, then issue it on Ethereum, all in a trust­less and per­mis­sion­less fash­ion? That is exact­ly one of the use cas­es of Ren.

To trans­fer Bit­coin, we need a pri­vate key. Ren allows a decen­tral­ized net­work of com­put­ers to gen­er­ate and store a pri­vate key, but pre­vents that mali­cious actors can assem­ble that key and run with the asso­ci­at­ed coins. The process nec­es­sary to achieve this is called secure mul­ti­par­ty com­pu­ta­tion (sMPC). sMPC enables a group of nodes to joint­ly exe­cute cal­cu­la­tions on a set of data, with­out reveal­ing the inputs or out­puts, while also remain­ing cer­tain of the depend­abil­i­ty of the result. It can do this even in the pres­ence of mali­cious or unre­li­able actors. sMPC has been under research since the 70s of the last cen­tu­ry, but its appli­ca­tion to blockchain tech pos­es addi­tion­al chal­lenges like fault tol­er­ance, the neces­si­ty to reach con­sen­sus among net­work par­tic­i­pants, or the detec­tion and elim­i­na­tion of bad actors. Ren estab­lished a net­work of nodes, called Dar­k­n­odes, that solves these prob­lems and that can form the basis for var­i­ous sMPC appli­ca­tions — like bridg­ing Bit­coin to Ethereum.

So, how does Ren bring Bit­coin to Ethereum? In the sim­plest pos­si­ble way: a user ini­ti­ates the trans­ac­tion by telling the Ren net­work that he needs a Bit­coin deposit address. The net­work gen­er­ates the pri­vate key for that address, with­out ever reveal­ing it to any of the par­tic­i­pants. It then sends a pub­lic address cor­re­spond­ing to that key to the user. The user deposits Bit­coin to this address. The Ren net­work detects the deposit. It waits for a cer­tain num­ber of con­fir­ma­tions, then issues the appro­pri­ate amount of renBTC tokens on Ethereum. The oppo­site way works too: renBTC tokens get burned, the Ren net­work sends native BTC to the user who ini­ti­at­ed the trans­ac­tion. This all works in a secure, per­mis­sion- and trust­less envi­ron­ment. Nobody can ever run with the deposit­ed BTC. Nobody can issue more renBTC that have been deposit­ed. Nobody can stop these trans­fers from happening. 

Any­body can test out the process of bring­ing Bit­coin to Ethereum on https://wbtc.cafe/. wbtc.cafe trust­less­ly trans­fers Bit­coin to Ethereum and then con­verts it to, some­what iron­i­cal­ly, trust­ed but well estab­lished WBTC tokens on the open mar­ket. Alter­na­tive­ly, renBTC can also be used direct­ly on Ethereum, cut­ting out any trust­ed 3rd party.

Other Applications

Trust­less and per­mis­sion­less cross-chain val­ue trans­fer is an obvi­ous and very present use case for the sys­tem that Ren offers. How­ev­er, blockchain based sMPC is by far not lim­it­ed to a sin­gle use case. On the con­trary, blockchain based sMPC is the miss­ing link to make pub­lic blockchains use­ful. Espe­cial­ly in busi­ness, the cas­es where every in- and out­put to a trans­ac­tion should be world-read­able, are rare. For indi­vid­u­als, the “all pub­lic” approach rais­es sub­stan­tial pri­va­cy con­cerns. sMPC sys­tems solve this by allow­ing for depend­able, but secret stor­age and com­pu­ta­tion, while pre­serv­ing the core promis­es of the blockchain based approach. This gives Ren poten­tial far beyond cross-chain val­ue transfer.

Ren is not the only project offer­ing sMPC on the blockchain. Oth­er projects include Keep, Enig­ma, and iEx­ec. Among those projects, Ren seems to have pro­gressed the most, both in terms of devel­op­ment of the core pro­to­col, and in terms of nascent devel­op­er adoption.

Network and Token Economics

As men­tioned above, Ren runs its own net­work of nodes called Dar­k­n­odes. Fees reward Dar­k­n­odes for their com­pu­ta­tion work and for the stor­age they pro­vide. Each Dar­k­n­ode requires a deposit of 100’000 $REN as a bond to keep the node honest.

If Ren turns out to be a suc­cess, run­ning Ren Dar­k­n­odes could yield excep­tion­al rewards, even for cryp­to stan­dards. Esti­mates based on the assump­tion that Ren will not only be respon­si­ble for cross-chain val­ue trans­fer, but will also be able to cap­ture a part of the decen­tral­ized cryp­to trad­ing vol­ume, range from 62 to 300K US$ of rev­enue per Dar­k­n­ode per year in 2022, depen­dent on the emerg­ing fee struc­ture and mar­ket cap­ture. Since REN is required as a deposit to run a Dar­k­n­ode, this gives the REN token an excep­tion­al out­look on a high timeframe.

The REN net­work has been released to the pub­lic. Any per­son hold­ing 100’000 REN can join it, pro­vid­ed that she is will­ing to main­tain the nec­es­sary tech­ni­cal infra­struc­ture to run a Darknode.

In our tests, oper­at­ing a REN Dar­k­n­ode was very easy. Like­ly the eas­i­est node set­up we ever tested.

Conclusion

The Ren project offers excep­tion­al fun­da­men­tals and has shown an out­stand­ing qual­i­ty of deliv­ery since its ICO back in ear­ly 2018. From a fun­da­men­tal per­spec­tive, this is one of the most excit­ing projects to come out of the 2017 ICO craze. It checks all the nec­es­sary box­es for a pos­si­ble long-term success:

• com­pe­tent team
• high qual­i­ty of deliv­ery both in code and project communication
• strong prod­uct with high­ly plau­si­ble prod­uct mar­ket fit
• work­ing prod­uct is avail­able and testable pub­licly, gen­er­at­ing rel­e­vant turnover
• strong blockchain use case
• strong token val­ue link, token mechan­ics and mon­e­tary policy
• fair val­u­a­tion (rel­a­tive to ICO), with lots of growth poten­tial for the token price

Like with any ear­ly stage project, all these pos­i­tives do come with the big caveat of “if it works out”. Var­i­ous asso­ci­at­ed risks:

• impos­si­bil­i­ty to solve the chick­en and egg prob­lem of boot­strap­ping liquidity
• cen­tral­ized team that could run out of funds before the project sees success
• cen­tral­ized start­ing point makes the project vul­ner­a­ble to reg­u­la­to­ry action
• token-val­ue-link could be forced to break, e.g. com­pe­ti­tion could force the Dar­k­n­odes to run at or near prof­itabil­i­ty, instead of run­ning at the extrap­o­lat­ed wild profitability
• net­work could be forced into cen­tral­iza­tion or a per­mis­sioned mod­el, e.g. via a buy­out of the company
• team could fail to gen­er­ate rel­e­vant trac­tion in the mar­ket, e.g. due to a strong­ly tech­ni­cal orientation
• on a short­er time­frame, the retail mar­ket could fail to rec­og­nize the val­ue of the project due to its B2B/professional nature

Over the past months, Ren con­tin­ued to estab­lish itself as a project and remains one of the most valid bets on the suc­cess of “DeFi” as an array of blockchain based prod­ucts with real adop­tion, and as a mar­ket­ing based meme. Our very pos­i­tive assess­ment of this project remains unchanged.

Sources

• https://renproject.io/
• https://github.com/renproject/ren/wiki
• https://medium.com/renproject
• https://www.reddit.com/r/RenProject/comments/etf8le/renvm_ama_answers

Cov­er image by Sarah Mey­er.