The advent of decentralized finance is about to turn the traditional world of finance upside down. Yet, there are still some crippling problems and limitations with DeFi that remain to be solved, one of which being how do you remove the barriers between different blockchains. How do you get people to exchange assets that are born and made compatible only with their native blockchains? In our THORChain review, we'll attempt to explore how this is possible.
THORChain marks one step forward towards an organic way of swapping tokens between different blockchains, hammering down barriers that once made it difficult for one token to move outside of its own ecosystem. All the while, THORChain builds a wholly decentralized protocol that rewards value and elevates the capabilities of decentralized finance to another level. If you're keen to know why we're excited, then feel free to read through our THORChain review to learn more.
What is THORChain?
Founded in 2018, THORChain is a decentralized liquidity protocol where its users and traders can easily swap cross-chain tokens across liquidity pools that interconnect to a number of popular blockchains, including Binance Chain, Ethereum, and Bitcoin. Built on a specialized Cosmos SDK, THORChain works similarly to other decentralized exchanges (DEX) like Uniswap but differs in that it allows for the real cryptocurrencies to be traded across different chains.
This is in contrast to having to adopt wrapped or synthetic versions of a particular cryptocurrency that is compatible on another blockchain, such as needing to buy Wrapped Bitcoin (WBTC) that could work with Ethereum-powered DeFi protocols. Within a completely permission-less and decentralized protocol, THORChain ensures that you won't have to trust a third-party intermediary, lose custody of your assets, or rely on centralized exchanges just to access liquidity on other chains.
How does THORChain Work?
As a DEX, THORChain uses the automated market maker (AMM) model instead of an order book for its exchange. This is where users could pool their funds together into a liquidity pool, thus becoming liquidity providers (LPs), from which traders can trade against the price set by the algorithm instead of trading against other users, i.e. buyer-to-seller. The use of an AMM solves the issue of price volatility and slippage for illiquid assets while also rewarding LPs with a share of the trading fees.
The key issue that we've found within our THORChain review was liquidity. How do you prevent users from jumping ship to another liquidity pool which is more lucrative? If they do, then the old liquidity pool now has fewer tokens in it to provide liquidity, which can cause immense price slippage for other users that rely on that pool for trading. To solve this, THORChain adopts a technology known as Continuous Liquidity Pools (CLP), which ensures that there's always liquidity in their pools.
THORChain's implementation of CLP actively encourages users to supply tokens to any liquidity pool in return for a portion of the trading fees and THORChain's native RUNE tokens. Traders could thus be able to have access and exchange on these liquidity pools at all times, which ensures that CLPs, unlike ordinary liquidity pools, have a constant supply of tokens. Moreover, THORChain will monitor the ratio of RUNE to tokens held in a pool, which then creates an on-chain price feed for the assets.
What other Innovative Ideas has THORChain Created?
CLPs are one of the core tenets of what makes THORChain unique, based on a similar ‘smart tokens' idea from Bancor. It is a clever system that makes sure that its liquidity pools will always remain reliable and that THORChain's users are equitably rewarded and pay a fair portion of the fees. But those aren't the only innovative ideas that THORChain has built. For our THORChain review, we're going to take a look at a more standout tech developed by THORChain.
1. Cross-Chain Bridges with the Bifröst Protocol
As we highlighted earlier in our THORChain review, another key aspect is their ability to facilitate native token swaps between different blockchains. The ‘Bifröst Protocol' works by using data gathered by THORChain's Proof-of-Stake ‘THORNode' node validators, the on-chain price feeds from the CLPs, and multi-signature accounts to keep these cross-chain bridges open and secured. To limit any centralization, validators are randomly assigned by the multi-signature to verify transactions.
Each of the Bifröst Protocol cross-chain bridges is customizable in that it can be determined as to how many validators are required to sign off on a transaction. More validators would make bridges less secure but would allow transactions to be processed faster. Meanwhile, the Bifröst Protocol utilizes the CLP's price feeds to assign each cross-chain bridge a security profile to assess how reliable a bridge can be or if it's at risk of failing.
2. Scalable Sharding with Yggdrasil Protocol
While THORChain might be able to build an exchange that enables users to swap assets between different blockchains while also making sure that their liquidity pools will offer the best prices, THORChain has also put a lot of focus on scalability. In order for them to facilitate high volumes of trading and transactions, the sharding mechanism on THORChain uses a vertical technique rather than horizontal, which allows the sharding to be applied to other cross-chain networks as well.
What can You do on THORChain?
Owing to the unique solutions developed by THORChain to solve the lingering problems with cross-chain swapping and price slippage on DEXs, we've seen some incredible growth metrics from them. Within just 138 days of their launch, THORChain processed more than $1-billion in transactions. Meanwhile, thereis over $633-million in total capital locked within THORChain. As for how you interface it, it works just like other DEXs such as Uniswap or SushiSwap.
Once you've connected your wallet, you can swap tokens or deposit into liquidity pools using one of a few community-designed interfaces powered by the THORChain cross-bridging liquidity tech underneath. As of this THORChain review, there's ASGARDEX for your web browser or downloadable as a desktop app, as well as THORSwap. Here, you can pool together or swap between a variety of tokens such as RUNE, BTC, ETH, BNB, USDT, LTC, SUSHI, BNB, and BCH.
What are THORChain's RUNE Tokens?
The native cryptocurrency of the THORChain ecosystem is the RUNE token. As a utility token, RUNE is an essential part of much of THORChain's distinctive features and core functionality. Mainly, RUNE tokens are used as a base currency and settlements medium to provide ample liquidity to the cross-chain liquidity pools – in other words – the CLPs on THORChain. If we look at THORChain's swapping technique, every token is not paired with each other but with RUNE.
In short, if you'd like to exchange in a trading pool between BTC and ETH, it's actually two separate trades being executed simultaneously. You're selling BTC for RUNE and then spending that RUNE to buy ETH. This is done to make sure that there's not an oversupply of liquidity pools. The benefit of this is that there are technically fewer pools, which should divide the liquidity more efficiently and be more balanced among them, instead of having small and illiquid pools just for a single trading pair.
Node validators will also have to bond a set amount of RUNE tokens to help power the network. THORChain's underlying blockchain will incur some gas fees, just like Ethereum, for transactions, trades, and especially those involving cross-chain operations. This can be paid with RUNE. Otherwise, rewards on THORChain are all paid with RUNE tokens, such as earnings by liquidity providers and node validators. So far, users have collectively earned more than $55-million in RUNE.
What are the Tokenomics around RUNE?
At the time of writing this THORChain review, the price of a single RUNE is around $14.05, based on data from CoinMarketCap. The value of RUNE tokens has risen through the roof since its all-time lows of $0.007939 per RUNE back in late 2019, highlighting an eye-watering 176,906.03% gains. Currently, THORChain's RUNE tokens are valued with a market capitalization of $3,261,408,102, making it the 42nd-most valuable cryptocurrency. All RUNE tokens were pre-minted before its IDO.
However, its original 1,000,000,000 RUNE cap quickly saw 50% of its total supply burned, which now stands at a maximum of 500,000,000 RUNE. 232,097,776 RUNE are presently in circulation, but another 20% of its supply is locked within THORChain. This will be followed by a slow emissions program which will see its community reserves issue 2,000,000 RUNE tokens each month until its 60,000,000 RUNE supply is exhausted, which is set to happen in 2.5-years.
This will then be rewarded to its users with a split of 67% being paid to node validators and 33% paid to LPs. Another interesting aspect of the Tokenomics we've discovered for our THORChain review is what happens when more than 80% of RUNE tokens are locked into THORChain liquidity pools. By design, the value of RUNE is made to be worth around 3x the value of pooled assets. In a deterministic fashion, the market cap of RUNE will be worth at least 3x of the value of all non-RUNE pooled assets.
What Are THORChain's Future Roadmap Updates?
As of this THORChain review, THORChain is still in its V0.2 update, where quite a few features are still nonfunctional, including their so-called “Multichain Chaosnet.” Their front-end DEXs such as ASGARDEX and THORSwap that enable users to swap tokens and pool assets are in their beta phase. However, much of these features will be unlocked and optimized following the V0.3 update coming soon, as well as a few more explainer and support pages for their site.
Additional features that could be accessed soon include the finalization of Chaosnet for cross-chain compatibility in Q1 of 2021, where THORChain will focus first on swaps between BTC and Binance BEP2 tokens. After that, we'll see THORChain's full main-net launch, where users will be able to experience unlimited staking, token swaps with ETH, and other new ERC-20 based tokens, as well as building a new cross-chain decentralized exchange wallet.
THORChain Review – Conclusion
In finishing off our THORChain review, we can conclude for certain that there's a great deal of promise to be had with THORChain, not just in its ability to finally help break down the interoperability factor between completely different blockchains but also that it provides a lot of value for its users. Its cross-chain swapping feature, as well as unique solutions to ensure that liquidity levels are kept at their peak, is one reason to look towards THORChain from competing protocols.
As a liquidity protocol, its on-chain economics is designed to be both lucrative and equitable for every user. There's so much you can do, either by swapping tokens, trade on arbitrage, becoming a liquidity provider, or operating a full node to power the THORChain network. Although they are still in a relative stage of infancy compared to their peers, our THORChain review does prove one thing, and it's that the old way of centralized exchanges and platforms is coming closer to its demise.
Ease of Use
Long Term Sustainability
- Allows users to easily swap tokens natively across different blockchains.
- Liquidity pools are designed to remain as liquid as possible, thus reducing chances of impermanent losses and price slippage.
- Highly scalable thanks to its unique sharding mechanism.
- Is highly robust, as there are more than 99 different nodes securing the network.
- RUNE tokenomics are highly rewarding and enable users to best maximize their monetization and lucrative earnings.
- Still a fairly young project, joining a highly competitive DeFi space.