With the objective of solving concerns on privacy, interoperability, and liquidity in decentralized applications, the RenVM ecosystem was established. This is yet another successful DeFi project with cross-chain interoperability, only this time, with better privacy features.
The Republic Protocol and its RenVM project were aimed to provide large volume and high-frequency traders the opportunity to execute trades without spooking the market with their calls. With the help of darknodes, they maintained an exchange with a hidden order book.
Ren began in late 2017 under the Republic Protocol, its cross-chain, decentralized dark pool. And in 2018, they developed a new system that allows users to create their own dark pools. It was founded by Australian National University classmates Taiyang Zhang and Loon Wang.
Wang, also the CTO of Ren, said that the purpose of the project is to provide access to inter-blockchain liquidity for all decentralized applications. With the main goal of establishing a product that preserves data privacy, they used darknodes as a foundation for RenVM.
According to the team, they saw that even with Republic Protocol’s hidden order book, a lot can still be unraveled from the technology that powered it. They knew that they needed to establish a platform that can offer end-to-end privacy, cross-chain interoperability, and liquidity. This was exactly what led them to create RenVM.
What is RenVM?
RenVM stands for Ren Virtual Machine, which is a decentralized and trustless cryptocurrency custodian. With the hope of creating an interoperable platform, RenVM offers its users the option of making digital assets that can work cross-chain. To simply visualize its purpose, think of how wrapped tokens work in making assets that are ERC-20 compliant.
We can take a look at wrapped tokens like the WBTC as a parallel example of this. Like BitGo, WBTC’s custodian, RenVM also stores the token deposited by a user into a secure address. Then, an equivalent amount of ERC-20 tokens are minted for the user at a 1:1 ratio.
Generally, their function is almost the same except that BitGo is centralized and RenVM is not. But how does RenVM achieve a decentralized custodial function and what exactly are their differences?
Utilization of Darknodes
Unlike centralized custodians, tokens that are deposited to the RenVM are stored in a select group from Ren’s community, not on the custodian’s wallet. They are called ‘darknodes,’ and it refers to a network of thousands of computers that also vouch for the validity of transactions on Ren.
This makes transactions faster and more trustless compared to how centralized custodians perform. For example, minting or burning an ERC-20 token can be done quickly without the need for merchants, signatories, or friction. Smart contracts can do that job for the network with more fluidity in value exchange and without any third-party needed.
RenVM can easily be integrated into different DeFi apps that a user trusts or prefers. RenVM has cross-chain functionality powered by specialized adapters. This makes it easy for users to use their actual digital assets to perform real time transactions without having to worry about making additional requests to mint or unwrap tokens.
Decentralized and Trustless
While custody over digital assets are conditionally transferred to RenVM’s nodes, they will never be able to find out what the user’s private keys are. RenVM’s unique ‘secure multi-party computation algorithm’ lets users freely mint or burn tokens without having to give up their private keys.
Today, RenVM can hold Bitcoin (BTC), Bitcoin Cash (BCH), and Zcash (ZEC), as well as support other tokens if they are using ECDSA private keys.
RenVM Core Technologies
In order to achieve inter-blockchain liquidity for RenVM, it has developed four core mechanisms that serve specific functions.
Shamir’s Secret Sharing
To maintain privacy without compromising data integrity, Ren uses the Shamir Secret Sharing protocol where ‘secrets’ (also referring to every data held in private) are divided into parts. Every darknode in the network is distributed with a portion of those divided parts.
Secure Multiparty Computation (sMPC)
RenVM’s scripts run functions such as order matching without having to reveal any input or output to other parties. This can also function even when some darknodes in the network are not deemed as ‘trusted.’
Byzantine Fault Tolerance (BFT)
The BFT consensus mechanism ensures that even if there are malicious nodes in the network, it can still run smoothly. This means that in RenVM’s protocol, they can still reach a consensus with at least two-thirds (or more) of all honest nodes in the network. Furthermore, this protects the system from other nodes that are failing or may be misleading the network.
This component guarantees that the protocol remains a speedy and decentralized consensus mechanism. It is a modified version of Tendermint’s consensus algorithm with sMPC and sharding support.
Republic Protocol is a decentralized dark pool exchange. With the Republic Protocol, users can execute large volume trades for every listed cryptocurrency.
What separates Republic and other forms of exchange is that it keeps a hidden order book. In most centralized and decentralized exchanges, the price of trades can be influenced by whales just by making a large number of calls in an order book. This can spook the market and affect price factors such as slippage or spread in some trades.
In order to deal with this problem, the Republic Protocol uses sMPC to match orders without needing to expose the price or volume of orders in the exchange.
RenEx dark pool refers to Republic’s decentralized dark pool exchange. Republic’s private exchange is designed to support block trading without having large volumes or high-frequency traders influencing the prices of listings in the exchange.
Hidden order book
Orders in the exchange are kept private until they are executed. No one can observe the trades that are happening in the network, not even the Republic Protocol. This makes the protocol less vulnerable to practices such as ‘frontrunning.’
Cross-chain asset trading
Users can execute atomic cross-chain trading of digital assets. Republic Protocol has the infrastructure to support atomic swaps for BTC, ETH, and other ERC-20 tokens.
Infrastructure for large orders
Republic’s infrastructure is designed to support the exchange of large amounts of BTC, ETH, and ERC-20 tokens with utmost privacy. It also offers greater liquidity even for large volume traders with minimum price slippage.
The hidden order book functions with the help of darknodes. These are nodes in the network that match order fragments by communicating with each other to run the exchange’s order matching function.
Guided by the distribution of orders under Shamir’s secret sharing mechanism, darknodes do not have to know the price or volume of orders to match them.
The Republic Protocol’s native token is REN. In order to run a Darknode, a user is required to stake a good behavior bond of 100,000 REN tokens. This is essential to prevent the forging of several fake identities in the private Darknodes network.
REN token also serves as a reward and payment mechanism throughout the whole Darknodes network, within and beyond the Ren ecosystem. Darknode owners, for instance, receive financial incentives in the form of REN tokens coming from the payment of RenVM users as well as other avenues.
The team has also confirmed on Reddit that they are working on various things “behind the scenes” that will ultimately bring more utility to REN tokentokens as Darknode fees.
As of this writing, REN token has a total supply of 999,999,633 REN with a market cap of USD$263 million.
RenVM is a successful innovation in providing people the opportunity to trade with greater privacy and speed. They have done this without compromising the effectiveness of the platform in terms of interoperability and liquidity.
Institutional traders can now execute large volume trades without creating adverse effects on exchange prices.
And with RenVM as a technology, any digital asset exchange or brokerage can establish their own dark pools that can operate trustlessly. This is a step forward for the crypto community towards achieving greater privacy and security in every financial transaction.