Ethereum and Decentralized Finance have taken the crypto market by storm. Bitcoin users are having to trade in their BTC tokens to access these services.
But what if you could use your Bitcoin tokens to access DeFi services on the Ethereum platform? The Ren Virtual Machine claims it can do just that.
What is Ren?
Ren BTC is a part of the Ren Virtual Machine (RenVM). RenVM is a decentralized interoperability-focused protocol that enables cross-chain asset transfers between blockchains. It facilitates the creation of ERC-20 tokens that represent other cryptocurrencies like Bitcoin (represented by RenBTC) and ZCash (RenZEC) at a 1:1 ratio.
The RenVM brings Bitcoin and other cryptocurrencies into the world of Ethereum and Decentralized Finance (DeFi). BTC and coins like ZCash or BTCH (Bitcoin Cash) have very little use cases as a digital asset other than the transfer of value or market speculation. Bringing these tokens into the Ethereum landscape opens up the tokens to smart contracts, decentralized applications (dApps) and DeFi.
Otherwise, users will have to trade tokens on centralized or decentralized exchanges. This can cause a loss in value when users want to buy back their Bitcoin. Ren allows users to easily swap between the Bitcoin and Ethereum blockchains without an intermediary. Fees are paid using the native coin, REN.
Ren was founded by Taiyang Zhang and Loong Wang in Singapore in 2017 as Republic Protocol. In 2018 they held an ICO that raised over $34 million and rebranded as Ren in 2019.
The RenBTC token was first issued in May 2020 alongside the Ren mainnet. Ren has expanded their services to allow the tokenization of digital assets on the Polkadot blockchain as well. This means users can bring BTC and other coins into the Polkadot ecosystem.
RenBTC has a main competitor, Wrapped Bitcoin, which allows users to exchange BTC for WBTC (an ERC-20 token) at a 1:1 ratio. However, Wrapped Bitcoin is limited in scope and the range of coins supported. Also, converting WBTC back to BTC is only available to a selected group of merchants. With Ren, any user can easily convert BTC into RenBTC and back.
Ren Tokenomics: Accessing DeFi
Ren has a native token, REN, that underpins the RenVM. This token is used solely as a staking token. There is a total supply of 602 million REN. During the Initial Coin Offering (ICO), 60.2% of these tokens were issued. 19.9% of tokens was allocated to the Ren reserves and 9.9% was split amongst the founding members.
Users can lock tokens and receive Ren-based tokens in return that are pegged to the value of the original token. With these new tokenized representations, users can access the dApps and DeFi services available on Ethereum.
So a BTC holder can lock their BTC coins and receive RenBTC tokens in return. RenBTC is the most popular token on the network but currencies like BTCH, ZEC, DOGE are available on the network with respective tokens, RenBTCH, RenZEC and RenDOGE. Users can easily redeem their RenBTC coins for Bitcoin.
Bitcoin and RenBTC
RenBTC can be created and used within the RenVM. There are three main transactions involving RenBTC that can also involve any other tokenized representation on the network (ie RenBCH, RenZEC). These are “lock and mint”, “burn and release” and “burn and mint”. Users will need to cover a transaction fee charged in the original currency and be able to cover Ethereum’s gas fee.
Lock and Mint
Lock and mint moves your Bitcoin (BTC) tokens into the Ethereum network. The user sends their BTC tokens to RenVM who locks the tokens and verifies the transaction. The BTC is bonded in a smart contract. Then the user receives a “minting signature” with which they receive RenBTC, an ERC-20 token on Ethereum.
Now the user can access the full range of services on Ethereum DeFi without having to exchange their Bitcoin for another token. This transaction can be done in under 3 hours for any coin supported by Ren.
Burn and Release
If the user wants to get their original BTC tokens back they can start a burn and release transaction. The user burns the RenBTC and RenVM verifies the burning. At this point RenVM transfers back the locked BTC tokens to the specified address.
Now the user can use their BTC tokens as before on the Bitcoin blockchain. Any user can do this easily. With Wrapped Bitcoin, only selected merchants can trade WBTC for BTC.
Burn and Mint
The final method is burn and mint. This is a more recent option on the RenVM that lets users move their ERC-20 tokens onto the Polkadot ecosystem.
Users burn their RenBTC tokens on Ethereum and RenVM monitors this for verification. The user receives a minting signature that allows them to mint RenBTC on Polkadot. These tokens can also be redeemed then for the original BTC.
Ren BTC Use Case: Bringing Tokens into the DeFi Landscape
These transactions can be carried out with Bitcoin Cash, ZCash and others to use them on the Ethereum and Polkadot blockchains. This cross-chain capability opens up the full range of DeFi services to these coins without having to trade them for other tokens. Users can easily create Ren tokenizations of their cryptocurrency asset allowing interoperability between blockchains.
Bitcoin users can now access smart contracts, dApps and more that were previously only accessible to Ethereum and Polkadot users. Bitcoin holders can hold (or hodl) their BTC coins and benefit from the increase in token value and use RenBTC to have a wider range of use cases for their tokens.
One important thing to note is that fees can be quite high as they are a mixture of Ethereum gas fees and fees charged by the Ren network. Unfortunately fees on Ethereum can be quite high due to network congestion.
As a result, creating RenBTC from BTC could result in losing coins if the gas fee is higher than the amount converted. For example, if a user wanted to convert $10 of BTC to RenBTC, the gas fees would be much higher and the user would lose their coins.
Ren BTC Use Case: Staking
The RenVM uses a variation of the Proof-of-Stake consensus mechanism to validate transactions on the network. The network runs thousands of nodes called Darknodes. These nodes process transactions and add blocks to the network.
REN tokens holders have to stake or bond 100,000 REN tokens to register as a Darknode. These tokens are bonded into a smart contract on Ethereum until the node is deregistered. This incentivizes honest behavior as Darknodes can have their tokens burned if they act maliciously.
Darknode are partitioned into shards daily. These shards process transactions in parallel to each other and the shards are reorganized every day to avoid targeted security attacks. Dark nodes also supply network resources and computational power to the network.
Users who bond REN tokens as a Darknode receives fees whenever tokens are converted into Ren ERC-20 tokens. This means any Ren token holder with the resources to operate a node can earn tokens in exchange. Fees are charged in the cryptocurrency being converted.
Ren: Bringing Bitcoin and Ethereum Together
While Ren has competitors in bringing Bitcoin into the Ethereum Virtual Machine like Wrapped Bitcoin, few competitors have managed to provide the range of coins that Ren supports. The recent branch into providing Polkadot interoperability and the roadmap to facilitating cross-chain interoperability to many more chains have been received positively across the market.
The real value comes in the tokenized representations that can be created on the network. These ERC-20 tokens that represent Bitcoin, ZCash and Doge coins can be used within the DeFi landscape. This hugely broadens the range of uses for token holders. RenBTC enables users to benefit from all Ethereum has to offer while retaining the advantages of a popular and strong coin such as Bitcoin.