THORChain

What is THORChain (RUNE)?

THORChain is a decentralized and autonomous cross-chain liquidity network that aims to decentralize cryptocurrency liquidity. THORChain does this using a network of public THORNodes and ecosystem products, with the entire native and cross-chain liquidity open to any participant without restriction.

THORChain allows anyone in the world to trade one digital asset on one chain with another digital asset on another chain. This is managed without custodians or wrapping and takes place in a decentralized, trust-minimized manner. Not just that, THORChain also allows anyone to earn yield on their digital assets.

One of the major motivations for the creation of THORChain is the fact that exchanges cannot truly deliver on the ideal of immutable money. While the centralized exchange (CEX) landscape has matured dramatically since the previous decade, exchanges are centralized and permissioned. This allows them to choose who has access to and censor transactions.

While the emergence of decentralized exchanges (DEX) solves many of the issues facing CEXes, most DEX platforms are restricted to certain blockchains or networks and form “walled gardens.” Bitcoin, for example, could not be traded on major Ethereum-based DEX platforms like Ethereum.

THORChain exists to solve this problem by providing an open network for the free exchange of digital assets while retaining their immutability.

When Was THORChain Launched?

THORChain’s story began at the 2018 Binance Hackathon, where developers began work on the project, viewing the low-liquidity transfer systems employed by centralized exchanges as lacking.

RUNE hit the market in an Initial DEX Offering (IDO) via the Binance DEX in July 2019. 20 million RUNE were sold in the IDO, with a total of 130 million RUNE sold in prior funding rounds.

The 20 million RUNE offered in the IDO were exactly one-third of the Day 0 circulating RUNE supply. Many of the privately sold tokens were locked for three months and vested over a year. Seed sale, team, and advisor-owned tokens were locked for three months as well, but vested over 15 months.

After a limited mainnet launch in January 2021, THORChain went to its full multi-chain mainnet on the 13th of April, 2021, supporting native Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Binance Chain, and Tether.

Who are the Founders of THORChain?

The official THORChain Twitter account posted that THORChain could only succeed if it is sufficiently decentralized, with nodes staying anonymous, stakers being driven purely by incentives, and developers being transient. In the same thread, the team added that THORChain has no CEO, no founder, and no directors. Moreover, developers self-organize through GitLab, which is public and fully auditable.

As a result, the development of the project is carried out on GitLab, with THORNodes being the eventual decision makers in terms of which codebase to run.

How Does THORChain Work?

THORChain is frequently likened to Uniswap, and at first glance, they function similarly. The way users trade revolves around the use of a liquidity pool, which consists of the deposits of other users who earn yield by depositing their funds.

Like Uniswap, THORChain has two main user groups:

• Liquidity Providers. These users deposit assets like native Bitcoin or Ethereum into liquidity pools. This is incentivized by yield in the form of trading fees from Traders.
• Traders. These users make use of the protocol to exchange one asset for another. They can send one asset in and withdraw a different asset, paying a small fee to Liquidity Providers.

The main difference between Uniswap and THORChain, however, is that Uniswap sits purely on Ethereum and exchanges various Ethereum-based assets. THORChain can exchange assets that work on completely different chains, such as BTC and ETH. To do this, however, THORChain requires another user group:

• Node Operators. These users run THORNodes, which comprise a THORChain node and a node for each supported blockchain such as Bitcoin and Ethereum.

Thanks to this architecture, the liquidity pools function like wallets controlled in a decentralized manner by node operators rather than a centralized server.

To illustrate via an example, when a Trader trades their BTC for ETH, validating nodes detect and agree that the BTC has been received in the BTC vault. This is possible since each node operator is running a Bitcoin node.

Then, they sign the outbound ETH transaction to the user from their Ethereum nodes, with 66% node approval required to confirm the transaction.

What Makes THORChain Unique?

One of the biggest selling points of THORChain as a technology is that it is the first immutable way to gain yield on assets like native Bitcoin.

While yield on Bitcoin isn’t a new thing, the only ways to do it before THORChain were to use wrapped tokens like WBTC or deposit Bitcoin on centralized exchanges or yield platforms. However, centralized platforms of any sort carry myriad risks, and one of the most high profile of these platforms has already collapsed.

Gaining yield on THORChain is not without risk, with protocol risk and impermanent loss coming into the picture, but it does fully eliminate custodial risk.

Beyond providing an immutable alternative for cross-chain asset exchange and yield, THORChain gives all revenues right back to its participants. THORNodes and liquidity providers are the sole beneficiaries of trading fees, with no revenue going to the team or developers.

Technologically, THORChain leverages a veritable arsenal, including one-way state pegs, the THORChain State Machine, the Bifröst Signer module, a TSS protocol, inbound and outbound Vaults, and on-chain solvency verification to do what it does. However, much of this goes on under the hood, making the platform very user-friendly.

What is Impermanent Loss?

Impermanent loss is a common risk faced by DEX users who provide liquidity to liquidity pools. One of the main requirements of providing liquidity is that the liquidity provider deposits two assets into the pool in a 50:50 ratio.

However, cryptocurrencies are volatile, and it is very common that one asset sees substantial gains or losses compared to the other in the wider market. When this happens, the pool relies on arbitrage traders to swoop in and buy up the asset that gained to sell it elsewhere for a profit.

This then reduces the amount of that gaining token in the pool, creating a situation where the liquidity provider has lost out on their asset’s appreciation. This is impermanent, however, because the liquidity provider does not actually realize this loss until or unless they withdraw their liquidity from the pool.

THORChain’s implementation of the liquidity pool, called “Continuous Liquidity Pools” or CLPs, mitigates this risk to some extent by implementing a slip-based fee rather than a fixed-rate fee for swaps.

This sort of slip-based fee does not eliminate impermanent loss, but it does reduce it by driving more revenue to liquidity pools. In addition to the reduction of impermanent loss, this sort of fee creates other benefits, such as:

• Better incentives for pools with poor liquidity since fees are proportional to the slip received.
• Very low fees for pools with deep liquidity.
• Greater inertia for pool pricing, meaning sandwich attacks are expensive to perform.
• Pool pricing can become a price feed since it is resistant to manipulation and sandwich attacks.

How is the THORChain Network Secured?

The main purpose of the RUNE cryptocurrency is to incentivize THORNodes to behave according to the THORChain protocol. In fact, THORNodes are collectively incentivized to post a bond of double the value of all native assets deposited into liquidity pools.

If this 2x bond threshold isn’t met, the system is considered “underbonded” and starts to move trading fees away from liquidity providers and toward THORNodes.

Thus, liquidity provision becomes unprofitable and THORNodes bid more and more RUNE into the total bond as they compete for an increased share of trading revenue. This happens because nodes have to outbid each other for the privilege of being part of the node set that is allowed to validate.

Thanks to this system of equilibrium between liquidity providers and THORNodes called the Incentive Pendulum, THORNodes are kept honest since misbehavior would see them lose double the amount they’d stand to gain.

The THORChain network itself, meanwhile, is built using the Cosmos SDK and secured by Tendermint.

Tendermint, a novel consensus mechanism, is the product of the Byzantine Fault Tolerance design, making it resilient even if one-third of network nodes fail.

It also provides very high transaction throughput thanks to instant finality consensus. This means that transactions are finalized and cannot be changed as soon as blocks are created.

What is the Use of RUNE?

As the native token of THORChain, the RUNE token has plenty of other utility beyond being used by THORNodes as a bond.

RUNE is the asset in which fees are paid to validators and liquidity providers by traders, and it is also the asset to which liquidity providers have to pair every deposit.

What this means is that when a liquidity provider deposits a certain amount of a native cryptocurrency into a liquidity pool, they should match that deposit with the same value of RUNE. If they don’t, the system swaps half of their assets to RUNE automatically.

This is done in order to aggregate liquidity into a limited number of pools. A lower number of pools means that each pool is “deeper,” resulting in less slippage for traders and better rates enjoyed by users. This can mean more users, which then begets a positive cycle that sees more fees, more liquidity providers, and thus even better rates and slippage.

RUNE also plays a limited role in network governance. Holders of RUNE gain a single vote for every full RUNE token they own, but the scope of voting is limited to signaling priority for assets and chains.

Who Controls THORChain?

THORChain is ultimately all about its participants, with the entire ecosystem designed to incentivize users and providers of services within it. Incentivization goes all the way down from THORNodes to users of the protocol (often referred to as THORChads), and the only way for insiders, team members, and others to benefit is by holding RUNE tokens.

RUNE holders can participate in a limited form of on-chain governance as well, with RUNE tokens granting votes for signaling priority. Holders also decide on when upgrades happen, how many nodes can participate in the protocol, and which chains and assets are listed and delisted.

THORChain governance is minimal by design to ensure that nodes do not communicate or learn the identities of other nodes. In this manner, the network retains security since the nodes can’t collude and take control.

How Much RUNE Is In Circulation?

RUNE has a maximum supply of 500 million, but the circulating supply currently stands at over 334 million RUNE tokens.

The THORChain team owns less than 1% of the total supply, having on-sold much of their original 10% allocation to raise further funds for the project.

How Do You Buy RUNE?

Since THORChain is all about the exchange of crypto assets, its native asset, RUNE, is also available on THORSwap.

You can find RUNE on other decentralized exchanges as well. And, given its popularity, it can also be found on most major centralized cryptocurrency exchanges.

You’ll need other cryptocurrencies to purchase RUNE on most exchanges, especially decentralized ones. Nonetheless, fiat trading pairs can be found on exchanges like ProBit, Binance, and FTX.

Is It Possible to Buy RUNE Instantly?

Buying RUNE on a centralized exchange is instant, but you can’t do much with RUNE on an exchange. To actually use it on the THORChain protocol, you’ll have to withdraw it into a private wallet, which most likely won’t be anywhere near instant.

For one thing, most exchanges have to complete KYC (Know Your Customer) and AML (Anti-Money Laundering) processes before even initiating an on-chain transfer to your wallet. Internal processes may delay things further, and some exchanges even wait a little while to batch transactions together to reduce transaction fees for themselves.

How Do You Store RUNE?

Although RUNE can be stored on an exchange, it can’t be used for governance or within the THORChain ecosystem if it’s in an exchange account and therefore in custodial storage.

If you want to take custody of your RUNE tokens, you’ll need a wallet. The THORChain community and THORChads are always working on developing safe RUNE wallets. The XDEFI wallet is endorsed by the community and supports Ledger import as well as the THORName service.

THORChain Energy Consumption

THORChain was developed using the Cosmos SDK and is secured by Tendermint, making it a very efficient network in terms of energy consumption.

With around 30 THORNodes providing consensus and a future expectation of over 100 THORNodes in play, that’s still only that many computers devoted to the security of THORChain.

As such, THORChain’s energy consumption is a far cry from the likes of Bitcoin, which require tens or even hundreds of thousands of computers to deliver their combined computational resources to the network.

Is RUNE a Good Investment?

THORChain is a project that excites many and serves the vital function of bringing discrete blockchains together. The level of interoperability it brings to the blockchains it serves gives users new horizons in terms of the utility of their digital assets.

More notably still, THORChain does this without wrapping and pegging, refusing to compromise on the immutability of the blockchain. Furthermore, the original vision of cryptocurrency remains in the decentralization of the project, a far cry from the multitude of highly centralized projects in the industry.

The value of the RUNE token is closely linked to the number of THORNodes and liquidity providers present as well. More users on the network mean more fees to be earned, and THORNode operators need to buy RUNE and bond it to the protocol, tightening its supply on the market.