Amity Haven
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Amity Haven

Thorchain

The Swiss Army Knife of Decentralized Financing.

Thorchain has so many aspects that it’s difficult to articulate.

Before Thorchain we mostly had many disparate blockchains that did not play well together. Bridges showed up, but these are not generally for native coins, instead they are for wrapped tokens that represent native coins stored on different blockchains. Some of the wrapped tokens actually represent Fiat currency and require trust that the money backing them actually exists. Lastly, Bridges are not generally economically secure. For instance with Thorchain, to attack the network would require over a million or maybe two million RUNE and compromise the network would crash the price of Rune. But, Bridges are definitely better than Centralized Exchanges once you have the bugs worked and cannot be hacked.

There is at least one wrapping protocol called REN (maybe others too) that hold your Bitcoin and mint ren tokens on Ethereum and the Binance Smart Chain (aka wrapped tokens). These wrapped tokens can later be redeemed for native Bitcoin and Ethereum. There are also AMMs (automated market makers) to swap wrapped tokens on specific blockchains. What we ended up with was many Bridges and many AMMs routing and swapping, all competing for liquidity. We also have CEXs (Centralized Exchanges) where you can swap a great many coins and have much more liquidity, but you have to give up custody of your coins, at least temporarily. In Canada, if you supported the Trucker Protest you might have had your funds frozen.

Komodo has had Atomic Swaps for several years now, which in some ways made it the best option prior to Thorchain. Unfortunately, Komodo used an order book mechanism and you really need an order book bot to constantly cancel and make new orders as prices fluctuate if you were going to provide liquidity and this complexity is probably why the Komodo Atomic Swaps have not acquired significant liquidity. Also, verification of Swapping occurs by SPV (Simple Payment Verification) which is similar to Bridges and isn’t economically secure. Although, Komodo had an a very secure option if you were ok with slow swaps using the Bitcoin blockchain to ensure the security of the swap.

Thorchain Nodes: Thorchain currently has over 160 Nodes, although only 100 (maybe 120 soon) actively participate in consensus. The nodes have a churn process where nodes are cycled in and out of consensus. The consensus mechanism also has a sharding process with up to 40 nodes per shard, currently 3 shards. Block times are about 5 seconds. At this moment there is $460 million USD worth of RUNE Bonded to nodes. Thorchain requires at least as much Bonded Rune in the Nodes as there is liquidity in the pools, as an economic security feature.

Thochain Pooled Bond Nodes: Just in the last week, Thorchain added a Pool Bond Node feature so that even people who do not have enough Rune (or skills) to operate a Validator Node they can still participate in the network security and earn rewards.

Thorchain Swaps: For every asset that is supported in a liquidity pool there is an equivalent value of Rune matched to that asset. For instance, currently in the Bitcoin LP there is $80 million USD of value, half of it Bitcoin and half Rune. The Swaps work via an AMM mechanism. If you were to swap Btc for Eth even though there isn’t a BTC/ETH pool, there are BTC/RUNE and ETH/RUNE pools and therefore the swap works seamlessly as if there was a BTC/ETH LP. This drastically reduces the number of pools needed, factorially. Since there always has to be more RUNE Bonded then there is available in the LPs and because every LP has an equal value of RUNE as to the Asset, this means there is always at least 3 times the value of RUNE then there are assets secured by the network. This is significant economic incentive to play nice. The single most exciting element of this function is the Impermanent Loss Protection.

Thorchain Synthetics: Synthetics serve one purpose, for arbitrageurs to quickly (5 second block times) and inexpensively (0.02 Rune transaction fee) maintain LP prices to that of the rest of the crypto industry. This mechanism doesn’t require an Oracle and avoids the high transaction fees needed to transact on Ethereum, Bitcoin and other high fee blockchains.

Thorchain Incentive Pendulum: As the value in the LPs approach equal value with the Rune bonded in Validator Nodes, this pendulum mechanism skews rewards and fees to the nodes as incentive to bond more Rune. As the value of Rune bonded to Validator nodes increases, pulling away from the LPs, the pendulum mechanism skews rewards and fees to Liquidity Providers to incentivize more Liquidity in the Pools.

Thorchain USD: Soon to be released is a mechanism similar to Terra and it’s Luna / UST mint and burn mechanism. Rune will be burned to mint USD and USD can be burned to mint Rune with an economic incentive to skew the mint / burn process towards maintaining a $1 USD Peg.

Thorchain Lending/Savings: Soon to be released, the lending mechanism will allow people to convert their (deposited) native assets into Thor.USD. This Thor.USD can be used like any other USD, including UST, USDT, USDC, renUSD, BUSD, DAI, etc. Thor.USD can be returned (burned) to release the collateral. The savings mechanism allows people to deposit collateral into the LP and NOT mint USD. All rewards / fees earned by either the lending or the savings collateral will be rewarded to Savings depositors since lenders received minted Thor.USD. This mechanism can be used to predict Bull and Bear Markets, minting Thor.USD during a Bear Market and burning USD before the return of the Bull Market. The single most exciting element of the this mechanism is that unlike all the other Lending/Borrowing mechnisms, there are NO liquidations when/if when becoming under collateralized.

Here is a great video to understand how an automated market maker works.
Here is a great video to understand what Impermanent Loss is.
1 BTC invested @ $40,000 and 10,00 RUNE invested @ $4.00
BTC increases in value by 10% while RUNE decreases in value by 10%
BTC decreases in value by 10% while RUNE increases in value by 10%

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Damon

Damon

Introspection, Global Coherence, Humanitarian / Disability Aid, Ocean Clean-Up / Reforestation Charities, International Law and Privacy Coins.