Name:
Incentives for a decentralized network
Authors:
Ren Labs
Status:
Draft
Scope:
Outlining how a decentralized Ren ecosystem can fund and grow itself
Overview
In a recent technical proposal by Ren Labs (RFC-000-036), a design for supporting multichain applications on top of the Ren platform was outlined, with the ultimate goal of supporting more use-cases, users, and bringing more volume to the protocol. The Ren platform is also set to migrate to a fully decentralized network, governed by the currently growing Ren DAO. With these major developments potentially to take place in the near future, there is an opportunity to make sure these transitions are as successful as possible, by recalibrating the incentives of the network. With optimized economics, the Ren ecosystem and its development can grow faster, ensuring its position as the leading multichain and cross-chain infrastructure in the crypto space. Done correctly, this would bring more value to all the ecosystem participants.
Background
The current iteration of the Ren protocol has reached a mature state in terms of its utility and security:
- The protocol supports 7+ host chains, 7+ source chains, and now an additional 20+ host chain assets through host to host support, with many more on the way.
- The protocol has done over $11 billion worth of transaction volume since its inception.
- The cross-chain support Ren offers can easily be integrated with RenJS, and the latest version (v3) makes it easier than ever to integrate, allowing seamless cross-chain bridging for any application on any of the host chains Ren supports.
- Ren assets are integrated across the DeFi ecosystem, and tailored applications like VarenX, zeroBRIDGE, and Catalog, are powered by Ren.
- The protocol has had zero hacks or exploits.
- The Ren DAO is growing with more active participation every day.
In the near term, Ren Labs will be focusing on integrating more assets and chains into the Ren protocol, such as Optimism. In response to feedback in RFC-000-036, Ren Labs will also be exploring deploying an EVM chain on Ren, on which anyone could deploy cross-chain native applications, and only darknode operators could spin up validators for. Details on this will be provided outside this proposal as soon as the viability is determined, and then would only go ahead if there is community support and agreement on fee setting and incentives.
In addition to the potential Ren-EVM chain deployment, a new Ren network will be deployed in parallel to the current live RenVM network. This network will stand out in that it will be fully decentralized from the start, and have higher security thresholds than the current operating network. Darknode operators will be able to deploy nodes on this network, which will act as a âChaosnet 2.0â, where the new Ren network design will be battle-tested in a public mainnet environment, and which the Ren ecosystem could fully migrate to in the future after sufficient security-related achievements have been met. More details on this Ren network deployment will be provided in a separate post.
While these large developments are taking place, there are discussions within the community regarding how to increase decentralized funding of the ecosystem. This highlights the need to take a look at the economic incentives of the Ren ecosystem, and possibly recalibrate them to ensure the communityâs goals and the safeguarding of the Ren ecosystem are met. If decentralized funding can be increased, the community would be able to incentivize more developers to work on and integrate Ren, to bring more use-cases, users, and volume to the Ren ecosystem.
In this proposal, we outline how such a recalibration can take place, that would ensure long-term funding and growth of the Ren ecosystem, and make sure the incentives for darknode operators are aligned with the ultimate goals.
Details
The proposal comprises three components that would synergistically improve the economics of the Ren ecosystem. The first component is establishing a not-for-profit Ren Foundation, which would serve as a real-world conduit for the DAO and that would provide a stable environment for developers around the world to contribute to the Ren protocol, in a fully transparent fashion. The second component is introducing inflation to the protocol, inflation that would go to the Foundation to be used as incentives for protocol development and growth. The last component would be instituting REN as the native asset of chains and subnets deployed on Ren, used for payment for transactions and computational costs, which would increase the token utility.
Establishing a Ren Foundation
The Foundationâs scope would be simple:
- Create a not-for-profit public goods company that maximizes public value for all network participants.
- Provide a stable environment for developers around the world to contribute to the protocol.
- Create an organizational framework that is responsive to the DAOâs governance apparatus, providing transparency, autonomy, redundancy, and flexibility regardless of macroeconomic events.
To appreciate why a foundation structure makes sense for Ren, consider what is currently ensuring the protocol development of Ethereum to continue, regardless of market conditions, regulatory developments, and geopolitical events: it is their Swiss not-for-profit legal structure. In a fully regulatory compliant and transparent way, it provides funding to protocol development via grants, unfazed to macroeconomic changes (e.g. market sentiment, regulatory and legal considerations). For Ren to sustain itself over the next decade and adapt to the ever blockchain-changing landscape, it is paramount to adapt similar legal and governance structures.
Inflation
As innovation is expensive, the need to secure long-term decentralized funding for incentives to be used for ecosystem growth is crucial in the competitive crypto environment. While there currently is a source of protocol revenue going to the Ren DAO treasury, it is not enough at the moment to bootstrap a whole new ecosystem of applications. And while Ren Labs will be contributing to Ren core protocol development as well as application development on top of the protocol, it does not substitute an organic ecosystem filled with applications from partners and new teams and projects working or deploying on Ren.
The natural way to secure long-term decentralized funding for ecosystem growth is introducing inflation. It is particularly powerful as the incentives would be in the form of REN, which incentivizes the builders themselves to bring the most value to the protocol (in the form of use-cases, users, or volume), as that has a positive effect on the incentive they receive in the end. This form of incentive is the most efficient way to spend funding, which is why the inflation solution fits so well. Especially if the incentives/grants for developers and projects coming to Ren are set up with proper lock-up structures, this kind of decentralized funding will produce the best outcome for the ecosystem.
To make sure that darknode operators are fully aligned with this, who crucially have provided and will continue to provide the infrastructure powering Ren, any inflation mechanism can be designed to ensure that active nodes do not get exposed to the inflation. As an example, say there were 2000 darknodes in operation, and inflation was set at 7% per year. Then to maintain the same level of total supply for the active darknodes, 20% of the inflation would go to them, which would be 1.4% of the total amount (20% of 7% is 1.4%). The rest, 5.6%, would go to the Foundation for development and incentives. Designing the inflation this way, going towards darknodes and the Foundation, makes it so that slowly over time, a majority of the REN and voting power would aggregate with active darknode operators, who long-term have and are involved both on the infrastructure layer and in governance, the participants that enabled the Ren ecosystem to grow in the first place.
Token utility
To balance the new funding that would enter the ecosystem, and solve a design choice for how applications built on Ren would pay for transaction fees, REN can be instituted as the native gas assets for chains deployed on Ren, just like ETH is to Ethereum. REN would then not only be used for darknode bonds, but also to pay for transaction and computational costs. This would increase demand for REN, as it does for ETH in the Ethereum ecosystem.
Another reason for making REN the native gas asset for applications on Ren is that it makes the network more secure. More transactions on Ren would lead to more demand for REN, which increases the value of the darknode bonds, making the protocol more expensive for attacks, hence more secure. And this coupling makes sense from a security point of view as you want the network to be more secure as the platform has more volume and TVL, which it would with this change.
These three components could together make sure that the Ren protocol and ecosystem will continue to thrive and attract more developer talent, applications, users, and volume, while further strengthening the community and establishing full funding transparency. If the incentives of the system are not changed, there is a risk that competitors will be better positioned relative to Ren in providing cross-chain infrastructure to the crypto market.
Implementation
- We will have a considerable period of open discussion regarding the proposal, to collect sentiment, feedback, ideas, and suggestions.
- If the community is in favor of the proposal or a modified version of the proposal, we will publish a RIP with more worked out details which would be subject to a governance vote.