Forward the Original Title‘MIIX Capital：Thorchain项目调研分析报告’*

1. Key Points of the Research Report

1.1 Investment Rationale

Thorchain is making significant strides in its sector, highlighted by a robust token economy closely linked to its native token. The expansion of its Total Value Locked (TVL) is intricately tied to the valuation of RUNE. With market uptrends, it’s anticipated that rises in BTC and ETH will propel $RUNE’s growth, thereby broadening its operational footprint. Moreover, when comparing Thorchain to its competitors, it stands out in terms of funding, ecosystem robustness, and market visibility. This positions Thorchain as an attractive investment opportunity with a promising outlook.

1.2 Valuation Insights

During the zenith of the previous bull market, RUNE’s valuation reached $4.6 billion, suggesting a potential fourfold increase in the future. Thorchain’s backing by Multicoin Capital underscores the venture capital world’s acknowledgment of its economic momentum. In the upcoming bull market, assuming uninterrupted operation and absence of cybersecurity breaches, Thorchain’s TVL is poised for substantial growth. This, in turn, could fuel a surge in RUNE demand, potentially unlocking a five to tenfold increase in value.

1.3 Risk Overview

Despite Thorchain’s promising growth trajectory, it faces considerable risks, particularly in technical and market domains:

Technical Challenges

At its core, Thorchain facilitates cross-chain liquidity, a domain frequently targeted by cyberattacks. Its comprehensive suite of services, including cross-chain swaps, synthesizers, savings accounts, multi-stage swaps, Proof of Liquidity (PoL), and lending, introduces complexity and vulnerability risks. Thorchain’s mitigation strategy involves continuous monitoring by a dedicated security team, capable of addressing anomalies through various measures such as node suspension, bounty programs, and transaction throttling.

Market Vulnerabilities:

The protocol’s performance is highly sensitive to fluctuations in RUNE’s price. While favorable RUNE valuations benefit the protocol, a downturn can trigger a rapid cascade of repayments. Additionally, the design of the lending service inherently favors RUNE over other collateral types like BTC and ETH, amplifying market risk exposure.

2. Overview of the Project

Thorchain stands as a pioneering decentralized cross-chain AMM (Automated Market Maker) trading platform, conceived by an enigmatic collective of cryptocurrency developers at the 2018 Binance hackathon. Its mission revolves around enhancing the dispersion of cryptocurrency liquidity across a comprehensive network of public ThorNodes and associated ecosystem products, making it accessible to a broad spectrum of users, including individuals, products, and institutions.

2.1 Scope of Operations

At its core, Thorchain is designed to facilitate native cross-chain Swaps, specifically serving users who demand seamless native cross-chain transactions. This demographic predominantly includes high-net-worth individuals and institutional players.

2.2 Founding Team

The team is anonymous, so no public information about the team is available. At the same time, an anonymous team can also be seen as a characteristic or risk factor of Thorchain.

2.3 Financial Backing

Thorchain has garnered financial support from notable entities such as Multicoin and the technically adept Delphi Digital team. While the exact figures of these investments remain undisclosed, the anonymity of the team suggests a potential for significant involvement by these financial backers. The project has also seen substantial success through multiple IEOs, rewarding participants with returns that significantly exceed initial investments.

2.4 Evolution and Future Plans

Thorchain’s journey has been marked by a focused and relatively straightforward path. According to the latest updates, the project is ambitiously aiming to expand its offerings to include order book and futures trading capabilities by the year 2024.

3. Products and Business Conditions

3.1 Technology and Offerings

On August 21, 2023, Thorchain launched an innovative cross-chain lending service. This service distinguishes itself by eliminating the need for liquidation, charging no interest, and not imposing a due date on loans. This represents a fundamental shift from the logic of other lending platforms like Aave.

The Thorchain lending mechanism is inspired by the UST & LUNA model, allowing users to borrow without the obligation to repay, pay interest, or worry about a loan expiration. Here’s how it works:

Opening a Loan:

Initially, users must deposit BTC as collateral into the BTC Pool, which then converts the deposited token into RUNE;

Next, the RUNE is burned in a virtual pool, creating the synthetic asset THOR.BTC in the V BTC Pool and minting additional RUNE;

Finally, users can enter the USDT POOL to swap the corresponding RUNE for USDT, equivalent to the value of the borrowed BTC, with the swap fee benefiting the liquidity provider (LP);

For instance, with a 200% collateral ratio, a user looking to borrow USDT equivalent to 1 BTC would generate 1.998THOR.TOR (a unit for calculating USD value) in the V TOR Pool, exchanging it for 0.996 BTC worth of USDT.

The value of the burned RUNE equals the collateral value (2BTC) minus the debt (0.996BTC) plus transaction fee losses. The system effectively burns additional RUNE valued at approximately 1/CR of the total (assuming RUNE’s price remains steady).

Users start by swapping USDT for RUNE in the USDT Pool, then exchange THOR.TOR from the virtual pool for repayment;

This allows retrieval of the synthetic asset THOR.BTC, which is then placed back into the V BTC Pool to mint RUNE;

Finally, users can exchange RUNE for BTC assets in the BTC Pool;

The value of minted RUNE equals the collateral value (1.998BTC) minus the debt (0.996BTC) plus transaction fee losses. The system mints additional RUNE valued at approximately 1/CR of the total (assuming RUNE’s price remains steady).

This lending and repayment process involves eight transactions, each incurring a fee. Active trading leads to more RUNE being burned, linking the lending operations directly to the DEX and generating demand for both DEX and RUNE.

Interestingly, borrowers effectively bet against the USD while favoring their collateral. Unlike traditional lending pools like AAVE that use actual assets as collateral, Thorchain’s model uses synthetic assets, essentially serving as certificates with RUNE facilitating transactions and fee collections. This model lacks a liquidation mechanism and interest charges, operating instead on transaction fees, with the lending module serving as the counterparty.

For RUNE holders, the ideal scenario involves users borrowing without repaying, reducing RUNE’s circulation. Repayment, conversely, increases its circulation. Users are generally inclined to repay when the collateral’s value appreciates. Since RUNE acts as a transaction intermediary, it’s akin to the LPs of the trading pool being the loan providers.

Additional Borrowing Details:

• Users cannot borrow more upon collateral appreciation without introducing new collateral;
• Partial debt repayment is possible, but full repayment is required to retrieve collateral;
• A 30-day collateral lock-up period precedes repayment, adjustable by the protocol;
• If RUNE’s value relative to BTC remains stable throughout the loan, there’s no net inflationary effect on $RUNE;
• An increase in the collateral’s value relative to RUNE from loan start to end results in a net increase in $RUNE supply.

3.2 Official Website Data

The average daily pageviews of the official website are less than 5,000, and the main traffic sources are the United States, Malaysia, and Russia. Based on the actual situation analysis, this data is certainly untrue and is for reference only.

3.3 Social Media Data

The project’s social media is incomplete, and developers occasionally participate in AMAs, but they are all anonymous.

3.4 Social Data

4. Business Analysis

4.1 Market Size and Potential

In the realm of cross-chain Swaps, projects like Injective and Kujira, rooted in the Cosmos ecosystem, have seen their Total Value Locked (TVL) and token valuations nearing all-time highs last month, signaling potential overvaluation concerns. Despite this, the broader market sentiment remains bullish on the growth prospects of cross-chain applications within the Cosmos ecosystem, underscoring the resilience and potential of these projects.

4.2 Competitive Dynamics

Thorchain faces competition from several key players, such as Injective, Kujira, and Chainflip, each with its unique strengths:

• Injective is notable for its robust financial backing from entities like Jump and Binance Labs. Its valuation often precedes its ecosystem development, suggesting a propensity for short-term overvaluation.
• Kujira stands out for its product development prowess and its gradually expanding TVL. However, its lack of substantial capital support could be a competitive disadvantage.
• Chainflip is currently in the development phase, with its capabilities limited to facilitating token swaps between ETH and DOT. Its competitive standing will hinge on its future development trajectory and market trends.
• Thorchain distinguishes itself with support from Binance Labs and a more refined token economy, especially with the strategic positioning of its native token RUNE, which garners significant market attention. This places Thorchain in a closely contested race with Injective.

While the primary distinction among these projects revolves around their token economies, their collective aim to enhance cross-chain liquidity positions Thorchain as a potentially more attractive investment opportunity.

5. Circulation and distribution of tokens

5.1 Total Volume and Circulation

The Thorchain ecosystem introduced a total of 500 million tokens. While all tokens are technically in circulation, 200 million of these are staked, leaving 300 million tokens actively circulating in the marketplace.

5.2 Distribution Strategy and Token Staking

In terms of RUNE’s token distribution and liquidity release, although the entirety of the tokens are in circulation, about 100 million tokens are currently staked, and 200 million are held in reserve by the team for contingency purposes.

5.3 Mechanisms Underpinning Token Operations

• Liquidity Provision: Within the DEX’s Liquidity Pool (LP), RUNE serves a pivotal role as the intermediary, facilitating a 1:1 exchange mechanism between two designated tokens.
• Incentive Framework: Liquidity Providers (LPs) are rewarded with transaction fees and system incentives in RUNE, which cumulatively account for an estimated 3.6% return.
• Security Measures: To contribute to the network’s consensus and governance—and thereby bolster its security and decentralization—node operators are required to stake RUNE.
• Governance Participation: Ownership of RUNE tokens grants the right to partake in Thorchain’s governance processes. This includes casting votes on pivotal decisions such as protocol amendments and fee structure adjustments.
• Transaction Fee Structure: Transactions conducted on Thorchain incur fees, a portion of which are payable in RUNE, thereby stimulating demand for the token.
• Collateral and Debt Settlement: RUNE also finds utility within the Thorchain ecosystem as a form of collateral or for settling network debts.
• Facilitating Cross-chain Transactions: Thorchain’s architecture supports cross-chain transactions, with RUNE acting as the vital link that bridges assets across different blockchains.

Notably, RUNE tokens are integral to the functioning of the lending service. This arrangement implies that the network necessitates a RUNE valuation triple that of the non-RUNE assets locked within. For instance, depositing non-RUNE tokens valued at 1,000,000 USD into Thorchain would necessitate a minimum RUNE market valuation of 3,000,000 USD, establishing a baseline or guaranteed value for RUNE.

5.4 Market Performance Expectations

As of now, the RUNE token is priced at $5.93, holding the #56 position on Coingecko, boasting a market capitalization of $1.78 billion and a Fully Diluted Valuation (FDV) of $2.958 billion. The unique 1:3 minimum support mechanism ensures a foundational level of market value for RUNE. This means that, should the prices of major assets like ETH and BTC ascend, the base support price for RUNE is poised to elevate in a 1:3 ratio alongside ETH and BTC, provided the valuation basis of these coins remains constant. Furthermore, the ongoing utilization of the protocol is anticipated to result in a gradual reduction in the quantity of RUNE available in circulation.

6. Investment Value Evaluation

At this juncture, Thorchain is navigating through its maturity stage. Its solid foundation in tokenomics coupled with significant market visibility positions it well to capitalize on the broader market’s upward trajectory. There’s a substantial likelihood that Thorchain will outshine in periods of market ascension.

Looking at the medium to long term, the project’s Total Value Locked (TVL) is set to escalate with any increase in the market values of BTC and ETH, naturally propelling the RUNE token’s price upward. As the ecosystem evolves to introduce more innovative features, the potential for RUNE to achieve multiples higher than BTC and ETH is considerable. Investors might consider progressively establishing positions during periods of market consolidation.

7. Conclusion

Thorchain’s intricate tokenomics, deeply intertwined with its native token, ensures that the growth in TVL directly influences the valuation of RUNE. The anticipated uplift in BTC and ETH values is poised to similarly elevate RUNE. When juxtaposed with comparable projects within its league—across capital influx, ecosystem robustness, and market engagement—Thorchain’s trajectory appears notably superior. Moving forward, as Thorchain broadens its operational footprint and refines its tokenomics, order book, and futures trading mechanisms, RUNE stands on the brink of potentially stellar performance, earmarking it as an investment of considerable long-term interest.

Note: The insights and opinions shared here are intended purely for informational purposes and should not be interpreted as financial advice. Should you have any concerns or differing views, your feedback is welcome for further discussion and clarification.

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