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:
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!