What is THORChain？The Promising Project with Native Swaps

[TL;DR]

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THORChain is a Decentralized Autonomous Organization protocol developed on the Cosmos network which seeks to make all crypto assets easily accessible and liquid through a one-stop-shop decentralized trading platform, or DEX. It is also able to conduct native swaps across different networks, and is currently the only project able to do so. It is governed by its native token RUNE, which is also available in BSC and Ethereum networks.

The project is still in its testing phase called Chaosnet. Once it reaches Mainnet, investors and users will have an actual grasp of what the platform is capable of and if it’s able to supply the demand of the 2 trillion dollar asset class that is crypto.

With all things considered, it’s still safe to say that THORChain is one of the most ambitious crypto projects to date. It still has to prove itself to the masses once the official network goes online but, if everything works out, it may ultimately change decentralized swaps for good.

Keywords: what is thorchain?, cross-chain swaps, native swaps, how do native swaps work, the thorchain network, liquidity pools, crypto assets, crypto market, crypto projects


[Full Article]

While the crypto markets are maturing and gaining more mainstream adoption, developing more original products and gaining daily users, there’s still a major problem to solve: crypto assets are always bound to their native networks. This means that tokens made in the Ethereum network cannot be directly traded with another network such as Bitcoin or Polkadot.

To go around this issue, wrapped cryptos were created, serving as an intermediary for exchange between networks. Users wanting to trade Bitcoin in Ethereum’s network, for instance, can use Wrapped Bitcoin made as an ERC-20 token.

But this is no ultimate solution, and that’s exactly the main obstacle that THORChain seeks to solve. In this article, we go through how THORChain is striving to become the main DEX in the entire crypto ecosystem through its recent work on native swaps and much more.

What is THORChain?

THORChain is a Decentralized Autonomous Organization protocol developed on the Cosmos network which seeks to make all crypto assets easily accessible and liquid through a one-stop-shop decentralized trading platform, or DEX. It seeks to do so by allowing users to trade purely native tokens, a technology that the project managed to officially accomplish back in April of 2021. THORChain is governed by the token RUNE.

Much like other DEXs like UniSwap or PancakeSwap, THORChain also provides liquidity pools where users can offer their crypto to pools of lent assets and, in return, earn interest from them.

How do native swaps work in THORChain?

Although the technical details of how THORChain managed to accomplish native swaps are not clear for those outside the project, open information on the matter is able to briefly clarify it. In simple terms, all crypto traded within the THORChain DEX passes through RUNE, THORChain’s native token, and then is traded again onto the following network.

Here’s an example of a transaction:
◆ The user seeks to trade BTC to ETH natively in the THORChain dex without the need for wrapped tokens.
◆ They put in the order and accept, after checking the pricing and fee details.
◆ Automatically and without further manual interference, native BTC is traded for native RUNE with support for the Bitcoin Network.
◆ Then, that native RUNE for BTC is traded for native RUNE with EThereum network support.
◆ Consequently, native eth-supported RUNE is finally traded for ETH. The whole process is nearly instantaneous and results in the user having quickly traded unwrapped Bitcoin for unwrapped ethereum without using multiple DEXs.

Until now the protocol has worked as expected with native trades, with developers slowly opening up Chaosnet, its testing platform, for users to make more trades and add to liquidity pools. If the project decided to open up trades and LPs for any high demand available, it could potentially halt the network as it is still in the testing phase. From the looks of it, they are in no rush to bring the platform to Mainnet mode.

In its 2019 conception, THORChain’s testing was launched with support for Bitcoin, ethereum, Bitcoin cash and litecoin. Slowly but steadily, the project is opening support for more native tokens. Just recently, THORChain aggregated the DOGE network into its platforms, with upcoming plans to move on to add the entire Terra ecosystem, with cryptos such as Luna, the stablecoin UST and Anchor.

The THORChain Network
THORChain utilizes a proof of stake (PoS) network backend system where the platform is held and kept running by node operators, basically those who hold massive amounts of RUNE and utilize them to run the network. In exchange for holding RUNE to validate the network, they receive more RUNE in return.

At the moment, it is extremely expensive to be a node operator in the THORChain network. Until very recently, it took one million RUNEs to run a single node. While the platform recently reduced the entry point to 300 thousand RUNEs, it’s still a hefty amount. At the time of writing, RUNE was valuated at 3.90 dollars per token, so it requires an investment of 1.17 million dollars to become a node.

The THORChain Liquidity Pools
For its liquidity pools, THORChain bases its prices on two factors: the number of crypto assets kept in the pool and their external market prices. Liquidity providers deposit RUNE paired with another crypto, such as BTC or ETH, and receive in RUNE the portions of the fees gathered on network transactions that utilized these two assets.

RUNE, the THORChain token
While THORChain has plans for several original tokens to be implemented in the platform and some are already active (XRUNE, THORSWAP), RUNE is the main token of its entire blockchain.

The governance, rewards, swaps, liquidity and Proof of Stake token of the network. It’s what makes THORChain run, negotiated with other assets in each pool to provide trading options for different blockchains. It also allows users and contributors to the project to vote on updates and other developments.

What’s more noteworthy about RUNE is that it has a deterministic value. RUNE’s tokenomics determines that the RUNE price is determined by two factors: speculation from market prices + the amount of non-RUNE cryptos currently deposited in the platform. Therefore, while RUNE is still susceptible to market volatility, it holds a more stable ground on its value than crypto assets that rely entirely on the financial market.

It’s important to note that it also functions the other way around. The entire crypto market might be booming with new investment inflows coming from all directions. Cryptos making, 20, 30, 50% profits in just a few days. However, if there are not enough non-RUNE cryptos locked in the protocol, RUNE will still hold a low value regardless of the market sentiment.

The Future of THORChain
As previously mentioned, THORCHain has the potential and the ultimate goal to become the main DEX platform in the entire crypto ecosystem. While that might be accomplished since it’s the only project that has solved the native swaps problem, there are still a lot of roads to pave before it can be considered a success.

For instance, the project is still in its testing phase called Chaosnet. Once it reaches Mainnet, investors and users will have an actual grasp of what the platform is capable of and if it’s able to supply the demand of a 2 trillion dollar asset class. Not only so, but Chaosnet had some major problems in July of 2021 when it was hacked three times in a matter of weeks. The THORCHain treasury covered the losses and the issue was fully solved, but it is still concerning.

With all things considered, it’s still safe to say that THORChain is one of the most ambitious crypto projects to date. It still has to prove itself to the masses once the official network goes online but, if everything works out, it may ultimately change decentralized swaps for good.



Author: Gate.io Researcher: Victor Bastos
* This article represents only the views of the researcher and does not constitute any investment suggestions.
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