An in-depth analysis on the REN token
Originally launched as the Republic Protocol in 2017, the Ren Project was formed in 2019 as a new initiative to focus on a private and interoperable liquidity layer for decentralized finance (DeFi). With Ren, users will be able to freely move value between any two blockchains, transferring tokens while maintaining complete privacy.
In layman's terms, Ren provides a layer of infrastructure that allows for transactions to be processed across any two networks (think Bitcoin and Ethereum) without parties having to reveal the holdings in their wallet to anyone.
As it relates to the world of digital assets today, one of the most talked-about benefits of blockchain technology is the transparency that open distributed ledgers provide. But, when we think about mass adoption, having your wallet balances easily viewable by anyone in the world might not be as desirable as we once thought.
For example, if you want to buy a cup of coffee using Bitcoin, you shouldn’t have to reveal that you hold a large sum of money to the store owner and vice versa. Not only does this pose a security threat for high net worth individuals, but it also turns digital asset ownership into a status symbol that it was never meant to be.
Thanks to Ren Project’s new virtual machine, the RenVM, solutions to these problems are being created today. In this article, we’ll be taking a look at how Ren Project has evolved in the past year and why their Darknode system proposes an interesting value prop for validators at large.
The Republic Protocol successfully raised $34M USD via an initial coin offering (ICO) in November of 2018. At the time of the raise, Republic poised themselves as a decentralized dark pool for atomic, cross-chain trading. This means that individuals, or, more likely, institutional investors could trade in any volume without having those details revealed
This mission was achieved with the launch of the network on the Ethereum main-net and with the deployment of the RenEx Darkpool beta. As it relates to the larger token economy, the platform’s native token, REN, was to be used as a staking mechanism to validate transactions within the network.
While all of these deliverables were accomplished within the respective roadmap, the team quickly realized that private liquidity was a much bigger market than they originally envisioned.
As many of us are aware, one of the biggest problems facing decentralized exchanges (DEXs) today, is the lack of liquidity. While the UI/UX of these exchanges is certainly shaping up in recent months, it doesn’t change the fact that most order books lack the substantial depth necessary to compete with centralized exchanges such as Binance. For this reason and more, the Ren Project was born.
How Does it Work?
Unlike other interoperability plays such as Cosmos, Polkadot or Aion which require projects to implement new protocol standards, Ren is inherently blockchain agnostic.
“Most current interoperability projects are creating a protocol standard and bringing other (new) blockchains into that standard. RenVM takes the other approach and brings itself to others (new and existing) blockchains.”
In short, Ren Project accomplishes this by offering a new virtual machine, RenVM, which allows any dApp, protocol or network to easily integrate private, interoperable transactions into their ecosystem. Furthermore, RenVM matches orders without validators or the network(s) at large knowing anything about the content of the order. To do this, Ren has three core components to advance the state of privacy and interoperability in DeFi. These can largely be seen as:
A Zero-knowledge Layer which allows the ability to store and transfer tokens from any blockchain without exposing wallet balances or transaction amounts
An Interoperability Layer which extends ZK transactions and enables the execution of trustless cross-chain swaps while maintaining privacy between networks.
A Dark pool layer which provides secret order matching with the details of the orders only being known to the owner.
As it was originally illustrated, REN Tokens are used as a proxy to perform work on the network. With the release of Darknodes via the RenVM, users are required to bond 100,000 REN (~$7,400 at the time of writing) to host their own node. By doing so, active Darknode validators are rewarded with network fees once every four weeks.
Fees are paid by users of the RenVM via an Ethereum smart contract, known as the Darknode Payment contract. Once per payment cycle, the Darknode Payment contract distributes these fees evenly to all Darknodes as a reward for their work.
Broadly speaking, RenVM processes transactions that either move between two blockchains or across a single network. For secret computations that move tokens between blockchains, dynamic fees are paid to the Darknodes by taking a share of the tokens that have been moved. In all other cases, Dai fees are paid to the Darknodes.
Users must pay a minimum fee of 0.1% when moving tokens across blockchains with the option to increase the fee in increments of 0.01% to encourage Darknodes to prioritize their transaction.
Given the breadth of use cases RenVM can facilitate, there are situations where a dynamic fee as outlined above, is not feasible, for example:
Transferring of non-fungible tokens (NFTs)
Performing general-purpose computations in secret
The exact fee is dependent on the amount of data required, the amount of work required, and how much the user wants to be prioritized but the formula for determining this is 0.000005 DAI / second / Darknode and 0.0000002 DAI byte / Darknode.
As it stands today, the top 10 holders collectively own 54.48% (544,779,549.40) of REN tokens. The largest holder of tokens is Binance, with the Republic multisig wallet coming in second, controlling 15% of the total supply.
According to CoinMarketCap, REN has around $4.4M in 24-hour volume with $4.2M of it being traded on the Binance REN/BTC trading pair. Other notable exchanges for REN include Huobi, Kyber, and IDEX, which collectively trade just over $100k in volume.
With this in mind, given the rising prominence in REN, we should expect other major exchange listings sometime in the future. However, given its $34M ICO raise and the current lack of utility in the token, many of the US regulated exchanges may be hesitant to list the token due to potential security law violations.
Regardless, REN has been one of the best performing altcoins in 2019 with the 1-year performance nearly reaching +200%. However, in the past month, REN has taken a significant dip with the 1-month performance experiencing a -40% drawdown.
The team at BlockTown Capital did an in-depth analysis on the potential valuation for REN. For those of you who have not read it, the valuation is based on four core assumptions:
Assumption #1: Annual transaction volumes of Bitcoin, Ethereum, ERC-20 tokens (including USDT), Litecoin and other RenVM compatible coins will continue to increase.
Assumption #2: Fees for transactions processed by the RenVM will average 1 bps (0.01%).
Assumption #3: There will be 5,000 Darknodes participating in the RenVM.
Assumption #4: Transactions processed by the RenVM could approach 7.5% of total transaction volume over the next 3 years.
With these assumptions in place, you can now calculate the valuation through a discounted cash flow (DCF) model. Adding up yearly cash flows and terminal value, we arrive at the below summation:
PV= 153,433,465 + 1,083,340,658 = 1,236,774,123 USD
The partners at BlockTown then took the total network cash value ($1.23B) and divided it by the estimated circulating supply of 500,000,000 REN. With this, the expected value of REN reaches $2.47 per token.
With the price of REN currently sitting at just $0.074, this represents a potential upside of 3,237% for prospective investors.
If you’re interested in getting a deeper look at the potential valuation and the assumptions made, we encourage you to read the post in-depth.
As it compares to other stake-based systems, REN is unique in the sense that rewards are paid in the form of transferred tokens and DAI. Taking this a step further, this means that darknode operators are paid in the form of something like BTC, ETH or XTZ, rather than being compensated in the form of REN tokens. As a result, REN’s staking system does not suffer from the inherent sell pressure resulting from validators looking to capitalize on their rewards. Instead, sell pressure from rewards is put on whichever blockchain garners the most traction, likely Bitcoin. Seeing as Bitcoin has much stronger buy-side pressure than that of REN, it’s safe to assume that validators will be able to capitalize on reward redemptions with little to no slippage.
Secondly, the high staking requirement (100,000 REN) necessary to host a darknode ensures that security of the network will be governed by high profile parties. This drastically reduces the chance for malicious actors to game the system as the initial bond requires a significant amount of capital. Furthermore, this staking requirement effectively removes REN from the circulating supply while the darknode is operational. As such, in the event that darknode’s become profitable in the medium term, it can be expected that scarcity will have an advantageous effect on the token price at large.
The existing market for cross-chain private transactions of digital assets is still extremely nascent. As it stands today, the average individual does not recognize why using something like REN is beneficial in the short or long term. While there may be a number of DeFi applications interested in integrating the RenVM, the system is heavily reliant on the support of it’s partners for long term success.
Secondly, privacy and interoperability are by no means novel ideas anymore. The concept of combining the two is certainly novel, but Ren must compete with a large number of projects looking to specialize in either private or interoperable transactions.
While the advantages of having a high staking requirement were listed above, it’s also worth noting that this entry-level poses a significant barrier to entry for dedicated community members who do not have the capital necessary to become a Darknode operator. As such, we hope that the project will consider some sort of delegation system for token holders of smaller volumes to enjoy Darknode rewards via smaller bonding amounts.
Ren Project poses an interesting proposition for the success of the digital asset ecosystem at large. By embracing a shared ecosystem, we believe that Ren Project has a large chance of succeeding within the DeFi. It’s likely that all most DeFi applications will benefit from enhanced liquidity supplemented by an additional layer of privacy, and Ren does just that.
As it stands today, RenVM is currently on testnet, with plans to be released on mainnet by the end of 2019. We’re excited to see how the integration of RenVM plays out in the wild, and for now will be keeping up to date with the project via their monthly updates here.