This article explains how Ethereum's cross-chain DeFi project RenVM works

Original title: "introducing | RenVM how it works"

Source: Ethereum enthusiast

investigateWhat is RenVM? Why can it achieve interoperability between chains without introducing centralization and trust requirements? This article delves into RenVM and discusses some of the underlying components that help RenVM work.

First, let's look at RenVM and its capabilities, then at the interoperability process. For this article, we'll take the example of casting an ERC20 token on Ethereum to represent BTC, but the process can be applied to all cross-chain assets. RenVM currently supports BTC, BCH, and Zcash, and can support any asset that USES an ECDSA private key (almost all ECDSA private keys). For reference, RenVM's main network ERC20 is named as follows:

The ERC20 token representing BTC on ethereum is called renBTC

The ERC20 token representing BCH on ethereum is called renBCH

The ERC20 token representing ZEC on ethereum is called renZEC

This distinguishes RenVM's primary network tokens from those used in non-production environments (Devnet, Testnet, Chaosnet) such as zBTC.

What is RenVM?

RenVM is a feature-rich decentralized host that is both trustless and permission-free.

The easiest way to understand RenVM is to think of it as a trustless manager that can transfer assets across chains while holding your assets. For example, if you put BTC in hosting with RenVM, RenVM holds the BTC and casts it 1:1 in ERC20 tokens (i.e., renBTC) on Ethereum to ensure that your renBTC is always endorsed by the same amount of BTC.

Let's look at another similar model: WBTC.

Technically, WBTC and RenVM have little in common, but WBTC can help us understand RenVM. The operation process of WBTC is as follows: eligible entities deliver BTC to BitGo, the centralized custodian, who deposits the BTC into the cold wallet and casts the ERC20 token (WBTC) representing BTC 1:1 on the Ethereum blockchain according to the balance growth of the wallet. The seller will sell the WBTC on the open market. In general, BitGo stores the BTC it receives and casts WBTC 1:1 on the Ethereum blockchain.

RenVM operates in much the same way: it stores the BTC it receives and casts the renBTC 1:1 on the Ethereum blockchain. The difference is that RenVM is a little bit faster.

- How did RenVM transfer BTC to Ethereum -

Three important differences

1. Flow value exchange

Instead of storing THE BTC in a centralized or trusted hosting organization, RenVM stores the BTC on a network of decentralized nodes called "Darknode." Once RenVM receives THE BTC, an ERC20 token representing the BTC is immediately cast at a 1:1 ratio for use by individuals and DeFi applications. An important nuance is that this exchange of value (casting and destruction) is fluid; It can transfer any number of assets hundreds of times per minute, without relying on centralized institutions, sellers, signatories, or any friction, thus achieving seamless transfer (i.e., interoperability) of digital assets across chains.

2. Composability

Another difference is that RenVM is composable (also known as DeFi Lego). RenVM is integrated directly into DeFi applications and is not visible to end users. By using specialized adapters, DeFi applications can provide users with cross-chain functionality directly without having to worry about casting/destroying/encapsulating/removing encapsulation and so on. Anyone (or any application) can use and integrate RenVM. In this way, users can exchange BTC on decentralized trading platforms, lend/borrow BTC on lending platforms, or pledge BTC to generate synthetic assets, and only use real BTC. Users don't need to see renBTC at all, or even feel ethereum.

3. Decentralized, trust-free and permission-free

The ECDSA private key used in RenVM is completely private, even to the node itself. RenVM generates and signs data using the ECDSA private key using a secure multiparty computing algorithm. No one can prevent users from casting their renBTC, destroying their renBTC to retrieve the BTC, or using their renBTC as they wish.

These three core differences put RenVM far above similar solutions by providing common interoperability.

Ok, Now I know what RenVM is, but how does cross chain transfer work?

The assets cast on Ethereum through RenVM are all 1:1 ERC20 tokens anchoring an asset. This means that if you hold 1 renBTC (an ERC20 token), you can always redeem 1 BTC with it. The supply of the original asset is directly anchored by the ERC20 token cast by RenVM. So renBTC is not a synthetic asset, independent of the liquidation mechanism, nor is it an ERC20 that anchors the PRICE of BTC on Ethereum, but an ERC20 that represents BTC at ethereum 1:1 and can be redeemed at any time for the same amount of BTC.

Cast BTC on ethereum

- Lock BTC into RenVM and cast renBTC - on ethereum

You just need to send BTC to some BTC address to cast renBTC:

1) Bob wants to use BTC in DeFi, so he finds an application that integrates RenVM. The user interface prompts show that the application will generate a unique BTC address (that is, an address for a BTC script that can only be spent using one of RenVM's ECDSA private keys).

2) Bob sends 1 BTC to this address and waits for confirmation of 6 blocks. Once the six blocks are identified, RenVM USES one of its secret ECDSA private keys to generate a coinage signature. Bob gets this signature and casts 1 renBTC (at the cost of RenVM), which is sent to Bob's specified Web 3.0 wallet (for example, MetaMask). Note: These steps are usually automated by the UI and do not require Bob to do anything specific.

3) Bob now has 1 renBTC and can use it in any DeFi application he wants. He could use this renBTC to borrow money, trade on Uniswap, do margin trading. Note that renBTC is completely homogeneous and can be divided into any number, no different from renBTC cast by others.

Redeem BTC from Ethereum

- Specify BTC address, destroy renBTC, and BTC will be returned to the address -

The redemption process is as simple as the casting process, and any number of renBTC can be redeemed for the same amount of BTC. When Bob is ready to redeem BTC, he destroys his renBTC:

1) Bob wants to get his BTC back, so he has found an application that integrates RenVM. When prompted by the UI, Bob provides his own BTC address to which the redeemed BTC will be sent. The address will be used to destroy renBTC and redeem BTC as part of an Ethereum transaction.

2) Bob pays a small amount of Gas fee for this Ethereum transaction and waits for confirmation of the transaction by ethereum blockchain. Then, when RenVM sees that renBTC has been destroyed, it sends the same amount of BTC to the BTC address specified by Bob (at RenVM cost).

3) Now that THE BTC is back in Bob's wallet, Bob can use it as he wishes.

Note: All of the above can be done on the main Bitcoin/Ethereum network (but one component, Chaosnet, has not been audited). If you want to try out the process yourself, you can use a small amount of BTC to get your hands on Roundabout (the application that integrates RenVM).

The new RenVM encyclopedia

If you are a tech geek and want to learn more about all of RenVM's components, check out our latest encyclopedia! At present, the encyclopedia is still under improvement. We welcome your positive feedback

Text link:https://mp.weixin.qq.com

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