A Deep Dive Into Thorchain
Exploring the Innovative Approach of this Cross-Chain Swap Protocol
Hey, hey, hey! Let's talk about crypto exchanges which are platforms where investors buy and sell digital assets. There are two types of exchanges out there:
First up, we have the old-school centralized exchanges (CEXs). They're pretty easy to use and have loads of liquidity, but they have one major flaw: a single point of failure. Plus, they're more vulnerable to regulatory control, which means they can freeze your funds at any moment.
On the other hand, we have the new and shiny decentralized exchanges (DEXs). They're all about trustless and permissionless trading, but they're still playing catch-up when it comes to liquidity. Plus, you can only trade within the same blockchain assets, so no swapping ETH for BTC on DEXs like Uniswap.
But wait, there's more! With the number of users on blockchain networks skyrocketing, we need cross-network liquidity more than ever. And that's where Thorchain comes in.
Thorchain wants to make completely decentralized trading of crypto assets across multiple blockchains a reality.
Are you excited? Because we sure are!
1️⃣ What is THORChain?
THORChain is a Cosmos-based decentralized cross-chain liquidity protocol designed for crypto-assets swapping within the network. It's an inter-blockchain permissionless DEX that eliminates intermediaries when trading tokens between chains.
In layman terms : It's this really cool thing built on Cosmos that lets you swap crypto assets between different blockchains without any middlemen getting in the way. It's like a permissionless party where everyone can bring their tokens and trade them instantly. No fuss, no muss!
2️⃣ History of THORChain
A team of Binance Dexathon (decentralized exchange coding competition) participants founded THORChain in 2018.
The platform's future growth is based on Gitlab, with nodes deciding which codebase to run. It is a decentralized protocol with no CEO, founders, or directors.
THORChain launched its public testnet in early June 2020 with the following features: multiple leaderless nodes, staking, Asgard TSS implementation, and so on.
The $RUNE token reached an all-time high of $21.26 on May 19, 2021, thanks to gradual mass adoption.
3️⃣ What's so special about THORChain?
Alright, let's break down THORChain and their cross-chain swap strategy in simple terms.
So instead of having buyers and sellers, THORChain has node operators who manage multiple THORNodes that take care of a bunch of different tokens. And get this - these operators have separate nodes for each blockchain they support.
Now, these nodes are somewhat like the wallet shards you'd see in a centralized exchange, except they're not controlled by any one person or company. Instead, the keys are stored in something called a Threshold Signature Scheme. (It's like the blockchain version of a secret society.)
But get this, there's no CEO, no founders, no directors in charge of THORChain. Instead, the developers stay anonymous to keep the project safe and decentralized. And instead of profits, they're incentivized by holding RUNE tokens. Pretty cool, huh?
4️⃣ Features of THORChain
THORchain stands out with some prominent features:
First off, they have a Continuous Liquidity Pool that's different from the norm. Instead of pairing assets like BTC and ETH, they use RUNE as a bridge between two types of assets.
Plus, the liquidity pools are super stable thanks to arbitrage traders keeping an eye on things and adjusting token prices according to the external market.
And get this, they even offer impermanent loss insurance for LPs who stake for over 100 days. Kinda like Bancor, but still pretty sweet.
5️⃣ THORChain Architecture
THORChain is its own blockchain that functions as a decentralized and autonomous cross-chain liquidity network as Layer 1.
It is a vault manager without a leader who has the following features:
One-way State Pegs to allow syncing state from external chains.
A State Machine to coordinate asset exchange logic and delegate outgoing transactions.
Bifröst Chain Client to process chain-specific transactions.
A Threshold Signature Schemes (TSS) protocol to enable distributed threshold key-signing.
THORChain can read, understand, and sync up with other blockchains like Ethereum.
So when someone sends a transaction from Ethereum, THORChain converts it into a witness transaction and waits for confirmation from its nodes.
Once that's done, the State Machine takes over and executes the transaction's logic and changes its state. It's like magic!
6️⃣ The $RUNE Token
RUNE is the native utility token of THORChain, powering the whole ecosystem.
Apart from a means of on-chain payment, RUNE serves the following utilities:
Governance: By staking their tokens, RUNE holders have the right to vote on governance proposals and the future development of the THORChain ecosystem.
Liquidity: RUNE acts as a settlement asset for THORChain liquidity pools, meaning that any asset is swapped for RUNE at a 1:1 ratio, facilitating cross-chain token swaps
Incentives: RUNE rewards liquidity providers and node operators for their contributions to creating new blocks and improving liquidity.
Security: To ensure internal security and prevent bad node behavior, node operators must bond a certain amount of RUNE, which is kept as collateral in the network.
7️⃣ Two factors drive $RUNE’s price
Deterministic value based on liquidity in the network
Multiple or premium of that deterministic value
The protocol uses incentives to ensure that $3 of RUNE is locked for every $1 of non-RUNE assets on the network.
This $3 is broken down as follows:
Liquidity Pools: $1 of RUNE for every $1 of non-RUNE assets
Node Bond: $2 of RUNE for every $1 of non-RUNE assets in the liquidity pools
8️⃣ THORChain’s Unique Value Proposition
THORChain uses RUNE to enable native asset trading with eight unique chains, including:
Binance Beacon Chain
THORChain node operators must deposit at least twice the amount of RUNE staked in the liquidity pool. This is a security measure to protect the network from attacks: If a node operator attempts to steal assets, the mechanism also punishes them by slashing their bond value.
According to CoinMarketCap, RUNE has a circulating supply is 327,056,566 RUNE tokens from a total supply of 500,000,000. 100% of this supply was minted at the genesis and is distributed as follows:
All swaps are subject to a fixed network fee and a dynamic slip-based fee. Slippage fees are calculated as a percentage of the total pool size.
The cost of trades decreases as the pools grow in size, and at scale, fees on THORChain will be far lower than on other exchanges. Trading fees on THORChain have no lower bound under this fee model.
Smaller swaps pay fewer swap fees, and more significant trades pay more fees (relative to pool depth):
1️⃣1️⃣ THORChain Ecosystem
With 41 apps and services, the THORChain ecosystem is rapidly expanding.
These are just some of the numerous protocols on THORChain:
ASGARDEX Desktop - Wallet and Exchange Client for THORChain
THORSwap - World's first multi-chain dex powered by THORChain
Rango Exchange - First Multi-chain DEX Aggregator
Brokkr - Investment Platform for optimized DeFi Investing
DefiSpot - Buy and earn BTC, ETH, and more fully decentralized
SKIP - An exchange powered by THORChain
THORGram - THORSwap in Telegram
Shapeshift - Explore the Defi Universe
Integrated Wallets and Exchanges
Liquality - Browser Extension Crypto Wallet with Built-In Swaps
XDeFi - Cross-chain Wallet & Dex, Browser Extention
THORWallet Dex - Cross-chain Wallet & Dex, Mobile Wallet
Ferz Wallet - Cross-platform Progressive Web Application
Edge Wallet - Cross-platform Mobile Application
Thorchain Explorer - THORChain Block Explorer and Dashboard
THORNode.network - THORChain Node Explorer and Information
Flipside Crypto - A community of data analysts that publish data queries, dashboards, and datasets
THORCharts - A helpful dashboard for THORChain-related statistics and analytics
Nansen Portfolio - Smart portfolio tracker with coverage of 476 protocols over 42 chains
Pulsar Finance - Dashboard to track your liquidity positions on THORChain and elsewhere
DeFi Yield - Dashboard to track your liquidity positions on THORChain and elsewhere
THORChain Calendar Bot - THORChain Calendar Bot retweets THORChain-related Twitter Spaces
THORYield - Track your Liquidity on THORChain, view your wallet balances and staking accounts
THORChads DAO - The rewards program and home of the THORChads Metaverse, where the community can enjoy creative projects such as NFTs, Merch drops, IDO access, and games. THORChads.com acts as a creative launchpad, supporting new THORChain community projects.
ThorGuards - The community hub of THORChain, building off of ecosystem partners and including them in the traits. The 3D art features a unique fusion of Norse mythology and Viking elements with cyberpunk aesthetics and accents.
Vanir Threads - Creates NFTs that are exchangeable for handmade physical collectibles - including the THOR Force 1, a THORChain branded, handmade custom sneaker set.
1️⃣2️⃣ What to Expect in 2023 on THORChain
According to their article on Medium, let's look ahead at what’s to come on THORChain.
Many exciting new features, products, and integrations are being developed for 2023. Some are still in the research stages, while others are nearing completion.
There is no guarantee that THORchain will adopt any of the listed features; this list only represents what is being worked on and considered. Anything on this list is subject to change at any time. Features are delivered only after extensive testing and at the request of the nodes.
New wallets will integrate THORChain for swaps and yield.
More DEXs will integrate with THORChain’s DEX Aggregator.
Centralized exchanges may begin using THORChain’s infrastructure and aggregator.
Synth Cap Raise & Protocol Owned Liquidity (POL)
Synthetic assets are currently capped at 30% of the total pool depth.
The synth cap will be raised to 50% before POL is activated (pending vote).
POL will help maintain a safe synth utilization ratio to allow Savers to scale.
New Blockchain Integrations
Binance Smart Chain is the next chain to be integrated, currently in early development.
Other chains may be integrated after a successful node vote.
Deprecation of Impermanent Loss Protection (ILP)
ADR-005 has been passed, and ILP will be removed for new deposits
After block 9450000, new liquidity providers will not be eligible to receive ILP. Depositors before the cutoff will be grandfathered forever.
Savers with no RUNE exposure removes the need to protect new LPs against impermanent loss.
Lending and Borrowing
No Liquidations, No Expiration, No Interest.
The innovative lending design.
Users can provide any supported Layer 1 asset as collateral and receive any asset as debt.
Open orders are held as synthetic assets in a new module.
Orders are automatically executed when the specified price limit is hit.
Orders are executed peer-to-pool instead of peer-to-peer.
UX Improvements for Developers
Nine Realms and the Core Team are working diligently to make the THORChain integration experience as simple as possible for new and existing wallets and DEXs.
Improved Developer Documentation.
THORChain has a healthy and growing ecosystem and offers an incredible market solution for decentralized crypto asset swapping.
The ecosystem and the RUNE token are highly leveraged bets on a multi-chain future within cryptocurrency itself and a large bet on many chains having value and competing for users. It also opens up the possibility of earning yield in your preferred native token, despite the risk of RUNE price volatility.
With such technical capacity and innovative technology, THORChain could find a place as one of the leading DeFi projects.