“Fortunately, I am mighty!”
The DeFi world is quickly expanding and if you have had your finger on your pulse of the ecosystem, you have definitely heard of THORChain. This project is a cross-chain permissionless digital asset exchange that runs on Proof-of-Stake. Think of it as a more robust Uniswap but for several different blockchains. THORChain is the gateway for exchanging assets to different types of networks. Why is this important? With rising gas and transaction fees on both the Bitcoin and Ethereum networks, people are seeking alternative chains to use for DeFi. This platform allows you to easily swap out tokens and be on your way to participating in different ecosystems with a few clicks. They have set the stage to become the one-stop-shop on-ramp to DeFi and things are looking very promising for the protocol.
Brief Overview and Background of Thorchain
The platform has no official CEO, founder, or director. The creators of THORChain are semi-anonymous because they did not want to create the ‘Jesus Effect’ that we have seen with many other DeFi projects. Thus the team is not known by real names.
The underlying idea of THORChain is to “protect the project and ensure that it can decentralize”, which is also the core premise behind decentralized finance. The ecosystem was created to incorporate a loop feedback incentivization for all parties where developers work for the Nodes, the Nodes work for the Node Operators, the Node Operators bring the capital for the Swappers, and the Swappers pay the fees. By designing the ecosystem like this, it aligns all parties’ incentives to grow and maintain the platform while remaining decentralized.
THORChain was started in 2018 and went through three rounds of funding in multiple increments. There were also some OTC sales of operational tokens. In total, they were able to raise around $3 million. THORChain operates in a very transparent manner where they have weekly dev updates as well as treasury reports to show any incoming major expenses and the financial well-being of the project. Their Github is extremely active, so if you are a developer this will give you a look behind the curtains to make sure that everything is running in ship shape.
Incentive Pendulum and RUNE
There are some things that make THORChain extremely unique, like the system that is in place to mitigate the issue of impermanent losses. Instead of having flat fees like Uniswap, they use a slip-based fee model to ensure that liquidity stays where it is needed. THORChain also combines a plethora of other technologies like on-way state pegs, a state machine, and a TSS protocol to facilitate cross-chain token swaps. The other distinctive feature of THORChain is the incentive pendulum mechanism.
The article by Seba.Swiss does a great analysis of the pendulum, but in summation, it is an instrument that is used when bonded RUNE amounts are too high. When this happens it doesn’t incentivize Liquidity Providers enough, so the reward pendulum will sway in the direction of the Node Operators to offer higher rewards. Once things have been stabilized the reward pendulum will swing back to a more normalized level. The fees generated by the protocol go directly to the users, and there are no provisions for the team. The incentive for the team is to hold RUNE just like all other participants in the ecosystem.
THORChain operates through their native token, RUNE. It is currently available on multiple blockchains, including Binance Chain, Ethereum, and Bitcoin. There are four key roles inside the THORChain ecosystem: Liquidity Providers, Arbitrageurs, Node Operators, and Swappers. Each individual has different objectives, but as noted earlier, each users’ rewards or incentives are aligned to help the ecosystem grow and maintain itself. We will break down the roles of each a little bit later, but this should help paint the picture of what things look like overall for THORChain.
Lastly, the platform opens up new opportunities for DeFi because current DEXs are limited to their own blockchain. THORChain is definitely trailblazing the path of interoperability in DeFi and current DEXs will need to adapt their model to compete in the future. It will only be a matter of time before THORChain chips away the market share of the big players who have established themselves in the DEX space. There is a lot of competition in the interoperability DeFi niche such as projects like Polkadot, COSMOS, Axelar and Zilliqa just to name a few, but there is no doubt that THORChain will be a brand name in the years to come.
Best THORChain Twitter Accounts
THORChain Unleashed – The Overall Score
Which issues is THORChain solving?
Cross-chain interoperability is one of the holy grails in the crypto space, and THORChain is one of the first projects to deliver a real and scalable solution for this. Although competition is not far behind the THORChain project, they offer one of the best solutions to date for cross-chain swaps. As they begin to incorporate more and more chains their project will only become more powerful. Currently THORChain offers token swaps on three chains, Binance Chain, Ethereum, and Bitcoin. The project overall has accomplished a major feat for progress towards interoperability and this is something to be majorly recognized for.
How close is THORChain to solving these issues?
THORChain has executed on a level that not many have done yet. They have solved some of the biggest issues with cross-chain swaps, liquidity, and nodes based on how they have set up their ecosystem.
What does THORChain need to succeed?
The project needs further adoption to reach a higher level of success than it already has. Just like many other chains the network effect can only create more value for their project, and more widespread adoption will be necessary for further success. As layer-2 solutions roll out for Ethereum, THORChain will see fierce competition, but since they have made it first to market they should be ahead of the curve.
What are the plans and roadmap for the coming year?
Chaosnet is currently live on BEPSwap:
- Swap BEP2 assets (and wrapped BTC/ETH)
- Staking is capped as the functionality of the protocol is verified.
- BTC / BEP2 swaps first
- Multichain Chaosnet
-BTC / BEP2 swaps first
-Unlimited staking — no caps
-ASGARDEX (Cross-chain DEX/wallet)
The Four Roles in the THORChain ecosystem
Liquidity providers – Overview
Liquidity Providers are those who earn rewards for supplying their assets to the network. For example, they earn yields on stagnant assets like Bitcoin, Binance Chain, and others. and these assets are held in Vaults. The pools of liquidity are used for Swappers use to exchange for assets. The income that Liquidity Providers make comes from the split between Block Rewards and the Swap Fees. The rewards can be affected by the Emission Schedule and Balancer and will tend to fluctuate based on the pendulum mechanism.
For more analysis of Liquidity Providers: Rebase Foundation
Nodes – Overview
Node Operators are responsible for running and maintaining the network software. They run high-performance IT infrastructure and bond RUNE in order to earn rewards in RUNE. They take part in the network by tracing and mirroring transactions on External Chains. Node operators are penalized for not cooperating and properly maintaining the network.
For more analysis of Liquidity Providers: Rebase Foundation
Arbitrageurs/Traders – Overview
Prices on THORChain are maintained by profit-seeking traders. Arbitrageurs or Traders find assets that are mispriced between markets. They buy assets on markets with low prices and sell them on markets with high prices. This is the definition of arbitrage which is what these roleplayers do in the THORChain ecosystem.
Traders analyze the exchange rates on THORChain with the rates on other markets. If they find the price is cheaper on THORChain they can buy and sell on an external market. If they find the price is lower in other markets they can buy there and sell on THORChain. This process is repeated at high-frequency. Over time, price information generates and THORChain settles with outside markets.
For more analysis of Traders: THORChain.org
Swappers – Overview
Users can swap any assets which are on connected chains and which have been added to the network. Users can swap from any connected asset to any other connected asset. They can also swap from any connected asset to RUNE.
The cost of a swap is made up of two parts:
- Network Fee
- Price Slippage
All swaps are charged a network fee. The network fee is dynamic and it’s calculated by averaging a set of recent gas prices.
For more analysis of Swappers: THORChain.org
Tokenomics and Staking Economics
There is a max supply of RUNE listed at 500,000,000, even though the project originally launched with a supply of 1 billion RUNE. There was a proposal made that was accepted and as a result half of the original token supply was burned. The interesting thing about RUNE is that it is a deflationary token. This is due to the burning of tokens for fees. With the current bonding APY around 30 % RUNE is an excellent staking token right now. At the time of publishing, RUNE token currently sits just under a $3 billion market cap at $11.30 / RUNE.
Because most of the items nodes will have a 2:1 ratio and stakers will maintain a 1:1 ratio between RUNE they hold and external assets locked in the vaults. This means that the network must be x 3 Total Value Locked. This inherently means that the RUNE tokens will become in more demand the more value is locked in the protocol.
If you are looking for some of the highest yields for staking your RUNE or other tokens you have to check out StakingRewards.com. Staking Rewards offers best-in-class data around passive income opportunities and information how to earn high yields for storing your assets.
Overall, THORChain will see some incredible growth as demand for cross-chain swaps rises. At the time of publishing, RUNE token currently has $2,8 billion market cap at $11.30 per RUNE with an excellent track record so far in its first two years of deployment. THORChain will be a household name in DeFi and is sure to attract many more users.
THORChain – Article
THORChain – Whitepaper
THORChain – Telegram
THORChain – Reddit
THORChain – Twitter