What Is THORChain (RUNE)?

The development of the DeFi protocols has caused a major shift of capital from centralized to decentralized finance, which is capable of democratizing the world of collateralized loans and much more. One of the most important innovations that came out of the decentralized finance space is the so-called automated market maker (AMM) model. AMMs allow crypto users to deposit a specific amount of cryptocurrencies to a liquidity pool, which purpose is to allow participants to use these funds to execute trades, with the pooled cryptocurrencies acting as the trading pair. In most cases, a problem that a user encounters is that the majority of AMMs allow trades to take place only within a single blockchain network.

THORChain’s goal is to offer the swap of cryptocurrencies from different blockchains that are usually not communicating with each other.

The THORChain project was founded in 2018 by an anonymous team as a decentralized free software project with no management hierarchy in its development. Its network is fully community owned, as it has no defined organizational structure including a CEO, directors, and so on. This project is completely open to anyone who wants to actively participate in improving it and making it safe. The THORChain team aims to build a fully independent blockchain, which knows how to maintain itself without external manipulation, and which functions as a liquidity hub capable of connecting multiple blockchains in a decentralized way.

When operating in decentralized finance, it frequently happens that a coin or token has to be moved between different networks. For example, a user may want to move bitcoin on the Ethereum chain, or Ethereum on the Solana chain. In order to do this, the most popular solution is to obtain synthetic and ‘wrapped’ tokens, which are a replica of a certain token that has been locked in a smart contract and ‘released’ on a chain other than its own. However, there are many risks associated with the use of these synthetic assets. These tokens must have collateral that guarantees their value, otherwise they could not exist. There are special smart contracts that act as safety deposits for this.

The problem is that sometimes these contracts can get attacked and hacked, or the hosting platform might have some bugs or fails. Every now and then, it happens that the complexity of this mechanism drives away the newbies in the sector. THORChain was designed to solve this interoperability problem between different blockchains, which makes it an infrastructure that gives life to a native multi-chain DEX.

How Does THORChain Work? Continuous Liquidity Pools (CLPs) and Node Operators

THORChain is a layer-1 network that works as a cross-chain permissionless Decentralized Exchange (DEX). It was created using the famous Cosmos SDK, which is a type of framework for building blockchain applications. It can be seen as an open-source software development kit that lets users create custom blockchains.

As already mentioned, THORChain does not wrap assets before swapping (unlike other cross-chain protocols). Instead, it uses native assets on THORChain to perform autonomous and transparent asset swaps.

The operation of this decentralized exchange is based on a type of AMM (Automated Market Maker), so no order book is needed, but everything is governed by specific algorithms and a special liquidity pool, called Continuous Liquidity Pool (CLP). CLPs allow access to liquidity without having the need to find a buyer or seller on an exchange. The liquidity in the pools can be placed by anyone, and earns them a return at the same time. Thus liquidity becomes permissionless and incentivized.

This innovative type of Liquidity Pool uses THORChain’s native token, RUNE, as an intermediary for every swap. When any two assets are swapped on THORChain, they are actually swapped between two different pools, because each of these assets is paired with RUNE. If a user wants to swap token A for token B, the protocol would first swap token A for RUNE, then RUNE for B. All this happens automatically, without the need for the user to move between two or more pools. This procedure involves interacting with a series of vaults that contain tokens supported by the swap mechanism, which are connected and managed through the THORChain. At the same time, users can deposit their funds into liquidity pools for other users to borrow, and are hence earning a yield based on the amount they deposit.

Thorchain is a Proof of Stake (PoS) blockchain that is secured and maintained by node operators called THORNodes. There are 100 to 300 validator spots available for anyone who wants to become a node. These spots are periodically recycled in a ‘churning’, which is an act that leads to the replacement of a validator node. This act can be forced or voluntary and the node will be replaced by one of those in standby, the first on the waiting list as a priority. This waiting list rewards the largest amounts: whoever holds the most RUNE is entitled to a higher position in the ranking. Therefore, in order to be competitive, the nodes are forced to make a substantial investment and to place their ‘bond’ of RUNE. These bonds are held as collateral to ensure that node operators behave in the best interest of THORChain. The total bonded needs to be twice as big as the RUNE pooled, so the amount to be committed varies depending on the conditions. If a node does not operate correctly or is considered a threat to the chain, a punishment called ‘slashing’ is triggered against it. If a node, for some reason, causes a loss of funds, slashing is also activated and the node will be taken from its initial bond at 1.5 times of the total that has been lost due to its inefficiency.

What Is the RUNE token?

RUNE is Thorchain’s native asset powering the THORChain network. Its maximum supply is 500 million units, of which 330 (66%) are already in circulation (September 2022). Initially, the token was built as a BEP-20 type token for the BNB chain. However, it currently runs as a native token on its own chain.

RUNE has many use cases and serves for different activities within the THORChain ecosystem. Below are the main activities.

• Governance: RUNE token holders can vote with their liquidity. Specifically, holders can vote for a new asset listing process, to delist a liquidity pool, or to change the parameters of the network;
• Staking: Staking RUNE earns users votes on governance proposals and fees from trading. In fact, a large part of the swap fees go to the stakers;
• Bonding: THORChain, being a Proof of Stake blockchain, is secured and maintained by node operators who bond a huge amount of RUNE. These nodes are computers that validate swaps and create pools for assets and receive rewards in exchange;
• Rewards: Block rewards and swap fees are paid to liquidity providers and node operators in RUNE on a set emission schedule. RUNE can also be used to pay for gas fees;
• Trading: RUNE is the base asset pair for all pools, so this means that it is used in all exchanges that take place within the THORChain ecosystem. Each liquidity pool requires the tokens to be paired with RUNE. Whether the user deposits, BTC, ETH or something else, these tokens will always be paired with RUNE, making this crypto indispensable for anyone wishing to deposit one or more assets on this ecosystem.

The issue of RUNE follows an exponential downward curve: high inflation in the first months, which then decreases more and more. This factor, together with a limited supply, acts as an anti-inflation mechanism, and therefore,could potentially make RUNE a good long-term store of value.

Source: rebase.foundation

THORChain Ecosystem

There is no doubt that THORChain is a very innovative project. The ability to swap coins and tokens from different chains without the use of synthetics or wrapped assets could be useful to many users of the DeFi world. There are already dozens of use cases that have provided good results, especially in the following sectors:

• Arbitrageur Tools
• DAO’s
• Insurance
• Liquidity Provider Tools
• Network Explorers
• Name Service
• NFT Collections
• Swap/Pool Interfaces
• Software Hardware Wallets
• Project Funding

Below are some of the most popular projects currently being built on THORChain. \

• THORSwap: A multi-chain DEX aggregator and the #1 interface for all THORChain services such as THORNames and Synthetic Assets. THORswap currently supports cross-chain L1 swaps between 25+ crypto assets across 8 major L1 blockchains in a decentralized and non-custodial manner.
• THORYield: A very efficient app that allows users to track everything that happens on THORChain, such as staking rewards, portfolio balances, LP positions, and node activities.
• ASGARDEX: A wallet and Exchange Client for THORChain. It aims to offer all the best practices of centralized exchanges, while being more secure, reliable and powerful than any existing digital exchange. In fact, ASGARDEX allows for more sophisticated trading options beyond market orders, such as leveraged margin trading and futures trading.
• XDEFI Wallet: A cross-chain wallet and Dex (browser extension) built for DeFi users and NFT lovers. With XDEFI Wallet users can: manage cryptocurrencies, connect to decentralized applications and NFT platforms, swap/cross-Swap cryptocurrencies, and bridge many other cryptocurrencies. All of this can be done from a single, secure, non-custodial, and decentralized Wallet.

There are many other projects that revolve around THORChain, most of which are community-based and open to everyone.

Is RUNE a Good Investment?

THORChain is considered by many to be a highly innovative project. The possibility of swapping coins and tokens from different chains without the use of synthetic or wrapped assets is tempting and could crown this project as the definitive chain for crypto swaps. The THORChain system maximizes the incentive for users to interact with the RUNE token, which increases demand, and therefore, the possibility of a very important future price increase. In addition, RUNE has a limited supply of 500 million units and its emission follows an exponential downward curve: high inflation in the first few months which decreases more and more reaching almost zero.

Another thing not to be underestimated is that THORChain is building a complete DeFi ecosystem, which includes all the trading and lending tools available on the market by breaking down the usual DeFi barriers, such as overuse of wrapped assets and the high number of operations required to operate in a DEX.

Mass adoption must be achieved by reducing the complexity of these steps as much as possible. The idea behind THORChain goes precisely in this direction, and if successful, it could become one of the reference blockchains for DeFi.

How to Own RUNE?

You can own RUNE via a crypto centralized exchange, so you can begin by creating a Gate.io account. Once the account is verified and funded, find out the steps to buy RUNE. In a nutshell, you can do this via flash swap, trading the spot market or even using leverage.

News on THORChain

In June 2022, THORChain’s long-anticipated Mainnet launch was finally officially announced. The team had been planning it since late 2021, but several issues delayed the actual release. The decentralized liquidity protocol has mostly been a research project, but now this achievement marks a key milestone signaling a new phase of development, scaling, and adoption.

Following the announcement, THORChain began the process of deactivating non-native tokens, meaning that the variants based on BEP-2 (Binance chain) and ERC-20 (Ethereum chain) have been swapped out for the upgraded native RUNE token. This move is part of a push toward further decentralization of the network, as THORChain’s main goal is to not depend on any third party, institution, blockchain, or some sort of external liquidity.

Useful References

For the latest updates about THORChain, you can visit:

• The official website
• Twitter
• Discord
• GitLab
• Telegram
• Reddit

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