Will $RUNE EXPLODE in 2022? THORChain Full Breakdown
What is THORChain?
THORChain is an independent blockchain built using the Cosmos SDK that serves as a cross-chain decentralized exchange (DEX).
In the same way you can directly swap an asset such as BTC for ETH on a centralized exchange, you can do the same on THORChain except in a fully decentralized manner.
Most DEXs will allow you to swap wBTC for example or another synthetic asset as long as it is on the same network as the DEX.
THORChain is doing something entirely new and unique by offering cross-chain native bridging capabilities.
But how is this possible?
When a user trades, they are sending in Coin A and receiving Coin B from a liquidity pool. The liquidity pool consists of deposits from other users who are earning yield (from the trading fees) by depositing.
This model is how most DEXs such as Uniswap operate.
However, in order to make this work cross-chain, the protocol uses two types of vaults, “inbound” and “outbound”.
As an example let’s say a user wanted to swap native Bitcoin for native Ethereum.
The user’s Bitcoin is deposited into the “inbound” vault and that Bitcoin is swapped for RUNE. Once completed, RUNE from an “outbound” vault is converted to ETH and sent to the user.
It may seem simple on the surface, but this process is actually incredibly complex.
For more details on how the technology works, check out the THORChain documentation.
RUNE is the lifeblood of the THORChain network. Just a few of the use cases include:
- Validators are required to stake RUNE to be part of the Validator Sets, which are bonded for a period of time to prevent nothing-at-stake attacks.
- All network transaction fees (gas) are paid in RUNE. Fees may be transaction fees, trading fees, bridge fees, and liquidity fees.
- Liquidity is always backed by RUNE in the Continuous Liquidity Pools. Therefore, RUNE functions as an ecosystem settlement currency.
- The Flash Network requires RUNE as liquidity to join Liquidity Hubs and fees are paid in RUNE.
- Block rewards for Layer 1 Validator Nodes (Nornes) and Layer 2 Liquidity Nodes (Mjölnir) are paid in RUNE.
THORChain pre-minted the entire initial supply of 1 billion RUNE tokens.
These tokens were distributed through four funding rounds, an incentive program for providing liquidity, and direct allocations to early contributors.
In October 2019, the THORChain team executed Project Surtr and burned over 484 Million RUNE in order to bring the total supply down to 500 Million.
The team opted for the token burn to achieve the following:
- Fewer tokens are distributed to the public markets, which reduces the size of emissions.
- A stronger public market in proportion to those still locked.
- A reduction in Total Supply imparts more value to the token.
- Inferred value of the public token price of $.016, (down from $.032) is much closer to the original Seed token price of $.01 and matches the current market price of $.016. This means that all public investors have now preserved full value in the RUNE token since its launch.
In terms of the price of RUNE, there are two factors at play.
First is the deterministic value.
According to the THORChain team, If over 80% of circulating RUNE gets locked into THORChain liquidity pools, by economic design RUNE’s market cap should be a minimum of 3X the value of all non-RUNE assets locked into THORChain liquidity pools.
So theoretically, if $1,000,000 worth of non-Rune tokens were staked in THORChain, the market cap of RUNE will be at least $3,000,000. And The 3:1 ratio is just the minimum or the deterministic value of RUNE.
Of course, the value of RUNE could be exponentially higher due to the second factor, speculative premium.
According to DeFi LLama, the current amount of TVL in THORChain is just over $500 Million.
With a Market Cap/TVL ratio of 7.15, THORChain’s market cap is sitting just north of $3.5 Billion.
RUNE is currently priced at $11.95 and has seen a 200% price increase in the past month.
The Bullish Case for RUNE
A partial reason for the recent run-up in price for RUNE is due to the launch of TERRA LUNA support on THORChain.
This was a significant milestone for the project and has added almost $40M in liquidity to THORChain.
But there is a new product coming to THORChain that could completely change the DeFi landscape.
THORFi is a proposal from THORChain to create an economic design that allows for:
- THOR.USD — algorithmic stablecoin pegged to USD.
- Lending — borrow USD from blue-chip LP positions with 0% interest, no liquidations, with as low as 100% collateralization ratio.
- THORSavings — an interest-bearing account with single asset exposure.
Let’s break this down further.
THOR.USD would be similar to UST in design, where one dollar of RUNE would be burned to mint one dollar of THOR.USD.
The lending feature would allow users to borrow against their holdings with no interest, no risk of liquidation, and as low as 100% collateralization, which means users could borrow up to $1 for every $1 locked-in collateral of another asset.
Mai Finance offers 0% interest loans, but I do not know of any lending protocol that currently offers all of those options.
Finally, THORSavings would be a savings protocol similar to Anchor Protocol.
THORFi is incredibly ambitious, to say the least. But if RUNE is able to pull off these three products, we would see a new paradigm in DeFi as no other layer 1 network is offering all of these features at the moment.
And if successful, THORChain could easily find its way into the top 10 cryptocurrencies in terms of market cap.
But this is a lofty goal, and there is no guarantee that the team can pull all of this off.
In fact, the THORChain team has been so forward-leaning in the past that it has come back to bite them. This leads us to the concerns and potential risks with ThorChain.
Concerns & Risks
Back in July of 2021 THORchain suffered an $8 Million exploit as a hacker deployed a custom contract that was able to trick its Bifrost protocol into receiving a deposit of fake assets.
Just a week prior to that hack there was a similar attack where roughly 4000 ETH was drained from the platform’s liquidity pool.
The Chaosnet is so complex and code-heavy that it has been pretty easy for hackers to exploit the chain.
This is certainly a concern and something that could happen again, especially with the potential launch of THORFi.
Bridges in general are targets for hackers, who have stolen nearly $1 Billion in just two attacks since February.
The first was a $320 Million exploit of Wormhole.
Luckily, Jump Crypto covered the stolen 120K ETH so that no users ended up with stolen funds.
And on March 23rd a hacker exploited Sky Mavis’(the team behind Axie Infinity) Ronin Network Bridge for over $625 Million.
It is unclear how this situation will play out.
But as an investor, you need to understand the risks involved when dealing with bridging protocols.
THORchain is an innovative network that has the potential to pull off something that will be groundbreaking for DeFi if successful.
However, the team has moved at such fast speeds in the past that the network has been vulnerable to attack.
We will see if the team has learned its lesson this time around.
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