OpenFi: Ren
With many layer 1 protocols out there, interoperability between different ecosystems is becoming more and more important. The Ren Project tackles this issue by offering a decentralized cross-chain bridging solution.
Disclaimer: The following piece is simply a summary of my opinions and should not be construed as investment advice or regulatory analysis.
O: Opportunity - How large is the Total Addressable Market? Does the project disrupt an existing market, or does it create a new market?
Score: 4.5/5
In the last two years, we've seen a shift in how digital assets are transacted. While Ethereum has been and probably will be the most popular layer 1 protocol for decentralized finance, other layer 1 protocols are quickly gaining traction. Competitors like Avalanche, Polygon, Solana, and Binance Smart Chain all have DeFi ecosystems with hundreds of millions of dollars in locked value, sometimes even billions.
Each ecosystem can be seen as its own platform, fragmented from other chains. In early attempts to solve the issue, pioneers such as BitGo introduced wrapped assets, such as WBTC. In those early models, centralized intermediaries controlled the flow and custody of funds for users. For example, BitGo would actually custody all the BTC that was wrapped to Ethereum as WBTC. This approach was not only resource-intensive; it was also not very scalable.
The vision for Ren is to implement a similar wrapping model but in a decentralized manner. The Total Addressable Market or TAM can be as large as the $2 trillion overall crypto market size. Ren currently has a total market cap of just under $400 million in wrapped assets including over $370 million in renBTC (wrapped BTC using the Ren Protocol). In comparison, WBTC has a market cap of over $6.5 billion. Other decentralized implementations like Thorchain and Cosmos' Gravity DEX have market caps of $55 million and $190 million respectively.
Ren is well-positioned for future growth as one of the more established cross-chain protocols out there today. As new layer 1 ecosystems develop, the need for its solution will only grow.
P: Product - How innovative and differentiated is the product? Is there product-market fit? How easy is it to use the product (i.e. good user interface and experience)?
Score: 4/5
Ren allows for cross-chain transfers of assets through the RenVM and its "dark node" infrastructure. In short, RenVM operates as a decentralized custodian of underlying assets. RenVM is replicated over thousands of individual machines known as dark nodes which operate as independent validators for the protocol. Each dark node helps wrap and transfer assets between networks. Currently, most of the dark nodes are run by the Ren Protocol team but the team has plans to decentralize in the near future.
Each dark node functions as a wallet to custody wrapped assets. The catch is that no single node has access to the assets stored within. A multi-signature structure known as Secure Multi-party Computation ("SMCP") dictates that multiple nodes must come together to open each vault, should the need ever arise. There is also a barrier to entry for setting up a dark node. The current requirement is 100,000 REN tokens or around $29,000 at the time of writing. This is to disincentivize bad actors from setting up numerous malicious nodes.
For developers, Ren has comprehensive open-source documentation for protocols to custody, wrap, and transfer assets to other chains. Once Ren is integrated, it's up to the individual project teams to offer their users the UI/UX to seamlessly transfer assets between different networks. Users are then able to freely trade the wrapped assets on DEXs like Uniswap. Currently, renBTC accounts for the vast majority of liquidity found in the Ren ecosystem.
E: Experience - Does the team have any previous experience building software and technology? Is the team well-versed in blockchain? What previous experience does the team have to ensure success?
Score: 3.5/5
The Ren team is distributed globally with many core team members in Singapore. According to LinkedIn, the project currently has around 30 employees with a majority in engineering and marketing. Many developers on the team have extensive technology backgrounds in crypto. Key team members include:
Taiyang Zhang: Co-Founder of Ren - Taiyang is also a founding member of KeeperDAO, a growing liquidity platform for loan liquidation on Ethereum.
Loong Wang: CTO of Ren - Previously, Loong worked as a lead software developer at Neucode.
Michael Burgess: COO of Ren - Prior to Ren, Michael was an assistant director of policy and compliance at the International Coach Federation.
According to Crunchbase, Ren Protocol raised $34 million in its 2018 ICO. Investors include VCs such as Polychain, FBG Capital, Huobi Capital, and BlockVC.
N: Network Effects - Will more people in the network benefit when others join? Are there high switching costs and stickiness in using the platform?
Score: 3/5
The Ren ecosystem, like most wrapped token platforms, has inherent network effects. By giving dark node operators a share of the revenues generated, users are incentivized to run their own infrastructure, which helps secure the overall network. More users will use the network and trade the wrapped assets as security and liquidity increase, enabling price stability. As the volume of swaps grows, this virtuous cycle incentivizes more node operators in search of revenues.
That being said, switching costs are relatively low compared to other DeFi platforms. If I were to hold renBTC for instance, I could swap easily into WBTC or any other asset on DEXs. This lack of friction should be seen as a positive for DeFi users but maybe not for Ren Protocol itself.
F: Fundamentals: Do the underlying unit economics make sense within the current network? How quickly are users growing? How much value has been transacted or locked up?
Score: 4/5
Like many bridging protocols that wrap assets back and forth, fees on Ren are generated during mint and burn events. There is a 0.1% fee when minting an asset and another 0.1% fee for burning an asset. All dark nodes that participate in the validation process in an honest manner are rewarded a proportionate fraction of fees generated in the underlying asset. For example, transfers of BTC to renBTC would yield BTC rewards for dark node providers.
Since launching in May 2020, dark node operators have earned revenues of $5 million in just under a year. This year, revenues are expected to triple to over $15 million.
Source: Bankless
I expect this growth to accelerate for a number of reasons. As stated before, alternative layer 1 protocols to Ethereum are growing in popularity. As these ecosystems develop, the need for cross-chain asset transfers will increase as well. Another driver is partnerships with different DeFi applications and layer 1 protocols. Currently, Ren has partnerships with over 20 of the largest DeFi projects including Curve, Balancer, CREAM, BadgerDAO, KeeperDAO, and Uniswap. It also has partnerships with some of the largest and fastest-growing layer 1 protocols such as Ethereum, Avalanche, and Binance Smart Chain.
I: Incentives - Are there proper cryptoeconomic incentives in place for network stakeholders and users to support blitzscaling?
Score: 3/5
Ren protocol users are incentivized in many ways to stake their Ren tokens to dark nodes and earn platform revenues. Revenues are directly proportional to volumes and share of revenues is proportional to total Ren tokens staked. When governance is rolled out in the future, there will be additional incentives to hold the token.
Ren has also done a good job of partnering with other DeFi projects to offer user incentives to jumpstart liquidity. In its partnership with UMA protocol last September, the two projects set up a Balancer pool where users earned 10,000 UMA and 25,000 REN tokens per week for providing liquidity. In a similar program with PlasmaPay this past January, users were offered yields for staking renBTC on PlasmaPay's platform.
Joint incentives between projects drive short-term user acquisition but only strong products will retain adoption over the long term. Ren’s value proposition lies in how it brings assets to new users over multiple networks, growing each asset’s utility many times over.