gm Ren Community!
I’m an analyst on the Messari Governor team, and we’ve been covering Ren governance as part of our daily workflow since Messari Governor launched about a year ago.
Due to the level of engagement and discussion around the transition to Ren 2.0, I decided to write an analysis on the topic and the governance implications of a new governance structure to the Ren Protocol and Ren DAO.
Obviously, new information is being released daily, so this analysis aims to be as up-to-date and as accurate as possible. Enjoy the analysis and check out the full analysis that is unlocked on Messari here: Governor Note: Ren Protocol Running Out of Runway.
Teaser
I hope you enjoy reading the full article on Messari, but if you don’t want to make the click, here’s a quick teaser of the first part of the article:
Governor Note: Ren Protocol Running Out of Runway
Key Insights
- Ren Protocol only has $160,000 in its treasury and will not be able to compensate the Ren Labs team beyond Q4 2022. There is a time crunch for Ren Labs to figure out a solution.
- MakerDAO and Ren asset holders must burn and bridge back their native assets before Ren 1.0 is officially sunset.
- The lack of legal transparency by Ren Labs regarding Ren Protocol’s intellectual property has the Ren community concerned. Restructuring Ren DAO’s governance framework could bring new legal challenges.
Context
Ren Protocol (formerly known as Republic Protocol) was founded in 2017 by Taiyang Zhang and Loong Wang. They sought to build an open-source protocol providing inter-blockchain liquidity and privacy via zero-knowledge, trustless swaps. After four years of building Ren, Alameda Research acquired the Ren Protocol and the Ren Development Team (later named Ren Labs).
Alameda Research funded Ren Lab’s development efforts with a quarterly budget of $700,000, which has been halted in light of the recent bankruptcy filings of Alameda and FTX. Given that Ren Protocol only has around $160,000 in treasury assets, the protocol was dependent on Alameda’s budgetary contributions to continue development. Ren Labs will require a new funding source to continue development or continue development unpaid.
Ren 1.0 refers to the RenVM, which is a decentralized cryptoasset custodian that enables universal interoperability between blockchains. Anyone can use RenVM to bridge any quantity of an asset to any protocol on any blockchain. Ren Labs will sunset Ren 1.0 in favor of Ren 2.0’s new protocol architecture.
The timeline to sunset Ren 1.0 and launch Ren 2.0 has been expedited due to Alameda claiming the rights to the Ren 1.0 Intellectual Property (IP) when it acquired Ren Protocol. To avoid crossing any legal lines, Ren Labs decided on the “safest” course of action for the Ren ecosystem, as quoted below:
- Disable minting through Ren 1.0 while keeping burns enabled (bridged assets are always backed 1:1).
- After 30 days (approximately Dec. 18, 2022, but no official date has been announced yet), shut down Ren 1.0 and disabling Ren assets to be burned and bridged back to their native asset.
In parallel with the above:
- Deploy Ren 2.0 on testnet.
- Test and harden the Ren 2.0 testnet together with the community.
- Deploy Ren 2.0 on mainnet.
- Transition away from the renproject[.io] domain, which was owned by Alameda. All current sites will be hosted on IPFS, and control will be transferred over to the RenDAO moving forward.
- Transition away from the renproject[.io] domain, which was owned by Alameda. All current sites will be hosted on IPFS, and control will be transferred over to the RenDAO moving forward.
Assuming funding for Ren 2.0 is secured, the Ren Community has indicated that it would like to see a portion of the funding earmarked to further build out the Ren DAO and its governance framework.
Expand Ren DAO
Compared to more mature and active DAOs like Synthetix or Balancer, Ren DAO doesn’t rely heavily on DAO governance to enact changes to the protocol. In the past year, the DAO has only processed 18 Snapshot votes.
Currently, the Ren Protocol depends on Ren Labs to make most of its decisions. However, the Ren Protocol has a DAO limited to Darknode Operators (REN-DN tokenholders). The REN token is only used as a bond to run a Darknode, requiring 100,000 REN to be bonded to register and run a Darknode. In turn, Darknode operators run and power Ren’s decentralized virtual machine.
The Ren community believes there is value in expanding the DAO. A proper governance framework might encourage REN tokenholders’ involvement and keep the Ren Labs team accountable for the Ren Protocol. This vision aligns well with the Ren 2.0 announcement of decentralizing and open sourcing the Ren Protocol, enabling a bipartisan governance model composed of the Ren DAO and Darknode operators.
While the community has pushed for the expansion of the DAO, this request may not be as attractive to the Ren Labs team. If the Ren protocol can procure funding and continue development, the expansion of the Ren DAO would likely cut into this funding and, as a result, a percentage of Ren Labs members’ compensation. Additionally, Ren Labs would also be required to hand over control of protocol decision-making. This scenario assumes that no equity will be exchanged during the funding process, which could further dilute the team’s control over the protocol.
renBTC FUD
As of Nov. 18, 2022, Ren 1.0 processed approximately $13 billion in cross-chain volume since its launch.
Due to the expedited development timeline of Ren 2.0, Ren Labs could not test and confirm that the Ren 1.0 contracts could be reused for Ren 2.0. This was the safest course of action instead of delaying the launch of Ren 2.0.
Since MakerDAO’s proposal to offboard renBTC, there has been fear, uncertainty, and doubt (FUD) surrounding a potential depegging of renBTC due to the recent sell/burn pressure. This proposal is not a result of the MakerDAO losing faith in the Ren Protocol; it’s that Ren assets (specifically renBTC in this proposal) can only be burned and bridged back to their native assets until approximately Dec. 18, 2022, as mentioned earlier. Hence, MakerDAO must burn the renBTC collateral as quickly as possible to ensure the underlying BTC isn’t locked in the Ren 1.0 contracts once Ren 1.0 is officially sunset.
… To finish reading this Governor Note, head over to Messari.