Maker and L2: Avoiding Ren's mistake

As you most likely know Ren is a bridging protocol to enable tokens from other chains to be bridged to Ethereum. The tokens take the form of ERC20s like renBTC, renFIL, renDOGE etc. RenBTC is even an approved collateral type for Maker Vaults.

The idea behind Ren is solid, the technology works very well and even the gas costs are not too bad. Ren appears however to be the perfect example of the better mousetrap fallacy, focusing exclusively on technology and completely ignoring the marketing aspect. If it was not for my tiny REN bag I would have forgotten about this team years ago, so utterly invisible is the project even to a full-time cryptohead like me. So what is holding Ren back? Why are bitcoiners resorting to WBTC when there is a safer, decentralized alternative that additionally has lower bridging cost?

The kneejerk reaction to this is that bitcoiners are a bunch of herd animals that just doesn’t get it, but a closer inspection of what actually goes on in the DeFi markets reveals that there are good reasons for the present situation.

Ren has not managed, or most likely never tried, to build use cases around their tokens. A use case is something so simple as to answer the question: “Once you have renBTC - what do you do with it?”. Right now the answer to that is pretty much nothing.

Sell renBTC for stablecoins? Nearly non-existing liquidity. WBTC/USDC is superior.
Sell renBTC for ETH? WBTC/ETH is again much better.
Use RenBTC for some niche application? This application does not exist yet.
Start a renBTC Vault at Maker? Doable but that requires upgraded DeFi knowledge.

So what do the renBTC pioneers do? They swap it for WBTC on Curve which pretty much defeats the whole effort. All in all, I think Ren is a textbook example of how not to do it.

So what can Maker do differently in light of L2?

L2 is a genuine opportunity for Maker, the defi cards will at least partially be dealt all over again. Maker will be among the first movers into L2, but will need to build uses cases for DAI on L2. So let’s answer the question “Once you have DAI on L2, what do you do with it?”.

One prime example of use case would be to have relevant trading pairs with sufficient liquidity such as:
DAI/ETH
DAI/WBTC
DAI/MKR

Several more could of course be added but these are the most important for us. How much liquidity is needed? At least 1-3 million DAI per pair, if possible more.

Example - use case building (NB: Not financial advice)
Situation: 25 May DAI/MKR on Uni V3. Liquidity is DAI 65K. Volume is low, multiple days without a single trade last 2 weeks.

Action: Add liquidity.


Result: Liquidity increases from DAI 65K to DAI 1.7M.

The trading volume takes off immediately and has stayed pretty decent since then.

DAI/MKR is now the second most traded MKR pool on Uni.

Now that was not so hard was it? DAI and MKR are top quality, the markets will trade our tokens, but someone needs to go first and start relevant markets with sufficient liquidity - otherwise nothing happens. This is where Ren have gone wrong and Maker needs to improve. When L2 opens up us in the Maker community need to roll up our collective sleeves and add liquidity where it matters.

L2 will be ours!

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Here’s what I’d like to see:
One-step (or as minimal, simple UX as possible given the stages involved) process of sending BTC through Ren, getting RenBTC, locking in the Maker Protocol, and using the Dai generated in the safest, highest-yield way possible. OR providing Dai/RenBTC liquidity. Decentralised all the way.
This is something that is already almost possible with DeFiSaver’s Recipes.
I know this is not quite what you’re talking about, but I agree that Ren is great but underused tech and there’s an opportunity here to help both communities.

I think you can also take Wbtc/dai pair as example on UNI-V2. It is amazing how as soon as we put the SF at 0%, 400k was minted and the swap started. Then 400k more has been added. If we can develop all tokens we have with dai pair on SUSHI + UNI V2 it will help to get dai as main currency.

It doesn’t seem to be a big effort as we already have the code, oracle and token.

We are currently 10th, but with a return of 9%. Before the Pair wasn’t even working.

Fully agree that we need this. And that we better not wait until someone else does. Is your call to action addressed to the community in general? Or does this general ‘use-cases’ activity fall within an existing CU’s mission? Should we vote to release additional funds dedicated to market-making activity?

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The call to action is addressed to the community in general and to whales and tunas in particular. I think it is of utmost importance we discard the idea that “the market will find a way” and simply accept that all markets start with individuals that take action.

I do not think this falls under the mission of any CU we have right now. Vote to release funds? I think that would qualify as speculating with own funds which is generally something to be avoided.

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Yes.

Market making is not supposed to be speculative. At a basic level it’s the business of quoting a spread, with associated risks. I don’t see any fundamental reason why we couldn’t allocate some budget to making markets (come to think of it, even investment as part of treasury management is OK).

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How do you plan to increase the use cases of DAI in L2? By making timely alliances with the best existing DEFI protocols?

I am a very regular user of DAI in Polygon, BSC and plan to use RSK soon.

I think from my trench, that native censorship resistance in DAI is one of its strongest value points out there.

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I understand the part of what to do with DAI once you have it in a l2 but what happens is that DAI is already a coin that solves a problem (voltality) is a safe haven coin that is the premise that I think we all agree and that we do not get into the differentiator that is decentralization.

You can make alliances with protocols to generate liquidity in the market as pooltogether did by creating an incentive to deposit in polygon where the community contributed and the prizes were on behalf of pooltogether.

Without a doubt I agree with you maker needs to expand very well towards l2.

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Sorry @Planet_X to hijack your post but I just wanted to update on it

We are 6th now and usdc is 4th. We have the same return as usdc.

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