What Is THORChain and Its Token RUNE?
THORChain is a decentralized protocol designed to enable users to swap assets in a permissionless manner. It operates as a vault manager, facilitating the exchange of native layer-1 assets such as BTC. THORChain relies on Tendermint and Cosmos-SDK to ensure network security. In addition, its leaderless primary vault leverages Threshold Signature Schemes (TSS).
Basics
In 2018, a team participating in a decentralized exchange coding competition called Binance Dexathon conceptualized THORChain. The platform aims to facilitate cross-chain liquidity and minimize the dependence on centralized exchanges and third parties within DeFi. THORChain allows for cross-chain swaps and yield generation on various crypto assets, including Bitcoin and Ethereum.
How Does THORChain Work?
THORChain is a permissionless cross-chain Decentralized Exchange (DEX) that allows native asset swaps without wrapping assets. It is a layer-1 network based on Tendermint and Cosmos SDK and uses Threshold Signature Schemes for securing its leaderless asset vault. It employs a layered Byzantine Fault Tolerance (BFT) consensus mechanism requiring a two-thirds majority consensus for funds to enter or exit the primary TSS vault.
The THORChain ecosystem comprises four types of users: Swappers, Liquidity Providers, Node Operators, and Traders. Swappers use liquidity pools to swap assets, Liquidity Providers add liquidity to pools and earn rewards, Node Operators provide bonds and are paid to secure the system, while Traders monitor and rebalance pools to make profits.
Liquidity pools are the backbone of asset swaps on THORChain. These pools consist of assets contributed by Liquidity Providers and are secured by node operators known as THORNodes. Liquidity Providers deposit their assets in THORChain’s liquidity pools to earn yield made up of swap fees and system rewards. THORChain is non-custodial, and only the original depositor can withdraw the deposited assets from the pool. Liquidity Providers can also propose new asset pools as long as they are tokens of a supported chain in the ecosystem.
THORNodes are independent and form a cross-chain swapping network by communicating with each other. They receive rewards in the form of fees for every swap made and must provide a bond of RUNE before becoming a node operator. These bonds serve as collateral to ensure that node operators act in THORChain's best interest. The total bonded needs to be twice the size of the RUNE pooled.
Arbitrage traders regulate market prices on THORChain, defining the value of asset swaps. They look for assets that are mispriced between markets to make profits from the price differences. This mechanism allows THORChain market prices to be regulated naturally without the need for oracles.
THORChain acts as a vault manager that monitors deposits and withdrawals while using pool ratios to price assets. With this liquidity pool model, THORChain determines how much any asset is worth in any other asset. It creates decentralized liquidity, removing centralized intermediaries.
Unique Features of THORChain
THORChain offers a unique DEX experience for asset swaps. One of the main advantages is that it eliminates the need to wrap assets. With THORChain, traders can easily swap native assets across multiple blockchains. Additionally, users do not have to register beforehand; anyone can send a transaction, and THORChain will execute the swap.
THORChain's liquidity pools are also noteworthy. Liquidity providers can earn a yield on idle assets such as native BTC, ETH, BNB, and LUNA. Moreover, after 100 days, these providers are protected against impermanent loss (IL) up to 100%. There are no lock-in periods, and users do not have to deal with third parties.
On top of all that, THORChain offers rewards to node operators who secure the network. These operators are encouraged to remain anonymous to increase decentralization. No registration is necessary for node operators, providing an extra level of privacy and ease of use. With THORChain, traders, liquidity providers, and node operators can all enjoy transparent, fair prices and liquidity on demand at any time.
What Is RUNE?
THORChain's native coin, RUNE, is a fundamental component of the network. With a supply of 500 million, RUNE has four primary use cases: settlement, security, governance, and incentives. It serves as a base pair for users to swap RUNE for any other supported asset.
To start with, RUNE serves as the settlement asset for all liquidity pools. It enables swaps between two pools by mandating a 1:1 ratio of RUNE:ASSET for each pool. Therefore, a pool with $100,000 in BTC will require holding $100,000 worth of RUNE.
To ensure security, node operators must bond twice as many RUNE as the amount they added to a pool. The RUNE bonds are held as collateral to ensure that the node operators behave in the best interest of the network.
RUNE token holders can participate in governance by voting with their liquidity. The asset or chain with the most RUNE committed will enjoy higher priority.
Finally, 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. The smallest denomination of RUNE is called a Tor, which is eight decimal points.
RUNE aims to move towards a predictable deterministic value. By design, RUNE's market cap should be at least three times the total value of non-RUNE assets in the ecosystem's liquidity pools. Overall, RUNE is an essential asset in THORChain's network, serving as a settlement asset, a security measure, a governance tool, and an incentive for node operators and liquidity providers.
Conclusion
THORChain is an innovative cross-chain DEX in DeFi that is leading the way in autonomous asset swaps. It has designed RUNE to serve as a versatile tool for settlement, security, governance, and incentives. This unique approach has enabled THORChain's native swap model to be deployed in a decentralized environment, making it an excellent option for asset swaps across multiple blockchains.