Ren Economic Security

Hi, I’m considering to buy 100.000 REN and start a darknode. But can’t understand current economic state of the Ren.

As I understand goal is 3L < B. This constraints implies that it is not profitable to attack RenVM.

But today project has 10L > B. In such situation RenVM should increase mint fee (done, it is 0.25%) and increase continuous fee (not working in the current project version).

Based on this data I suppose that economic of the project is not good. But this project is new for me and that is why I want to ask you if I’m wrong or not?

The economic model you speak of is relevant to when darknodes are actually powering the network and storing the TVL. Currently Ren team operates a network of 13 nodes distributed around the world and darknodes play a very small role in this; they are primarily here to build community, test fee models and node registration volatility, and create a stable base for when they do receive the reins.
Efforts have been made to reduce TVL, and when host to host on renbridge3 goes live (soooon!) we should see both TVL and volume rise so it will be interesting to watch how this ratio changes. With burnandmint transactions we may end up having a rise in volume which significantly outpaces rise in TVL. Eventually fees will have to be revisited.
There other methods to provide security such as the greycore (this trusted group of nodes also needs to sign a transaction) and some secure hardware ideas which prevent anyone from even accessing the transactions their node is working on. All layers of security - the more the better.

Thank you for the reply it is very interesting.

I like the idea of Ren project, when you can use it as semi-decentralised service to buy BTC using stable coin without KYC (buy renBTC for DAI and then burn renBTC and obtain BTC).

But I don’t see a point to buy REN coin as investor, because:

  1. According to RenWIKI REN coin should be utility token, which you need to operate node (100k REN). But problem that project doesn’t need this nodes because it is currently based on 13 nodes operated by Ren team.
  2. REN market price should be possible to estimate based on utilization of Ren token, but current utilization is not real because at current stage darknodes are not necessary.
  3. Based on two previous points REN is hardly possible name utility token as there is no utilization. At current stage it looks like speculative (it can appreciate in value only if someone else pay more than you) coin. It is not bad, bitcoin is the best known speculative coin. But REN is not promoted and designed as store of value and in that case it is not good idea to buy REN as speculative coin.

Finally current REN token economic remind me a pyramid scheme. All REN tokens initially belong to REN team → tokens sold to investors (node operators) with intention to sell minimum 100k REN → REN price increase → REN team sell part of REN and pay annual percentage yield to Darknode operators from there own investment. And because network is not decentralised there is no way to check if annual percentage fee origin is from the fee of minting or burning, or just from investors investments (pyramid scheme).

What do you think?

I am sorry, I must have assumed you had understanding that although nodes are not directly participating in transaction processing, they are still earning fees as if they were. So the token price of Ren is in fact a very direct correlation to node income as well as speculation over future node income. And it is definitely not a pyramid scheme. All tokens are circulating and nodes earn their % of fees from network activity. All transactions on Ren are charged a small fee, and 100% of these fees are equally distributed to nodes and only nodes.

Also want to add that all transactions that Ren processes are public and auditable so anyone wanting to take the time can check that nodes are receiving exactly the correct percentage of fees

I understand that nodes earning fees as if they are directly participating in transaction process. Even they are not. And yes, Ren token price has correlation to node income as well as speculation over future node income. But again problem is that this income is not produced by your node, it is produced by Ren team nodes (even it is then shared to your node). And this is the main problem of purchasing Ren tokens. You should pay for 100k Ren tokens that will be used to run darknode that is in fact don’t participate in the process of fee generation.

Current Darknode APY is 25.23%. That means that with current APY recoupment of capital investment is 4 years. But current APY looks high, so I expect it will reduce. Additionally I should mention that only 20% of Ren supply is bonded. It means that if all Ren tokens will be bonded APY will reduce to 5%. In that case recoupment of capital investment will be 20 years. And during all this time you will not know if your node start produce fees itself or not and would it be safe to attacks or not.

Based on this I think that it is good idea to use Ren as a bridge. Like a client, regular user. But by Ren tokens and run darknode looks like very bad idea.

That’s fine, and many people have done their research like you and either decided to spin up a node or not based on similar thoughts. The APR of a node usually hovers around 10%, it has been high lately. I’ve run a node since the very beginning and am happy, but have also deregistered one to use that capital for other things.
Running a node is a small commitment as the tokens are locked for a couple months and there is some work involved to set it up. Nodes are paid the fees to make the economic experiments more realistic - every decision made as regards to fees and future are affecting nodes just as they would if receiving fees naturally.
I’m glad many don’t want to run a node yet - my node earns more :slight_smile: and this is also part of the tokenomics to see how registrations ebb and flow with volume and node income.

Thank you for interesting discussion. It was a pleasure to discuss darknodes with you :slight_smile:
Hope one day darknodes start operate as main nodes

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Looks like a new proposal is out that may affect this timeline: