A COMMUNICATIVE UNIVERSE: THORCHAIN
Thorchain is already called “the future of defi” with its “ DEX of the future”
It represents the standard that, in the future, defi should have
Let’s go into it and see WHY IS IT IMPORTANT
Thorchain is a multi-coin decentralized protocol, with a cross-chain architecture.It’s built on Cosmos (Cosmos SDK) and Tendermint BFT.
Thorchain, therefore represents the infrastructure (back-end) and so there are several front-end, interfaces or applications which interact with, and are based on, the chain.
WHAT ALLOWS PEOPLE TO DO?
It allows people to swap tokens and coins, natively from a chain to another.
ALL IN ONE PLACE
In fact Thorchain has such an inter-operability quality, that allows users to swap by staying in the same platform and with no intermediary (like bridges).
So Thorchain gives people back a sort of INDIPENDENCE from intermediaries or others centralized authorities, but also INTEGRATION, because it involves natively all coins from different blockchains (everything through its token, $RUNE, which has a limited supply of 500 million units).
So, by resuming, this project gives you the possibility to make cross-chain swaps of coins and tokens.
This INNOVATIVE APPROACH TO LIQUIDITY finds application through its DEX — -> ThorSwap
HOW IT WORKS?
Let’s start by saying that you won’t need to wrap or make a synthetic to do a swap.
The model is the one of an AMM (automatic market maker, like Uniswap).
Every pool is composed by 50% “X” coin and 50% $RUNE.
This choice is due to simplicity, because it’s easier to optimize on transaction fees. LESS TRANSACTIONS=LESS FEES
There are no dedicated pools to swap between tokens — ->so the exposure is always half on $RUNE.
INCENTIVE FOR LIQUIDITY PROVIDERS
There’s impermanent loss protection for liquidity providers. This protection is time-linear; the 100% protection is reached after 100 days. So if for example, you keep liquidity for 50 days, you’ll get 50% of protection.
Now, LET’S GET INTO THE SWAP PROCEDURE
When doing a swap you will interact with 2 vaults, one dealing with a chain, that we will call CHAIN A, and the other vault dealing with CHAIN B. Between this interaction there’s the “verification, consensus and validation” process, done by Thorchain Nodes or ThorNodes
THE PROCESS:
YOU — ->transaction to vault A (with a chain A address, provided by the DEX) — -> Validation by nodes — ->nodes activate the transaction to vault B — ->transaction completed and funds swapped
THOR-NODES
ThorNodes are about 100, there is a majority of active nodes, the rest is inactive, but ready to work if there’s a need. To join the node system, a node needs to deposit a “BOND”, a determined quantity of $RUNE.
To safeguard the ecosystem’s safety, Thorchain has introduced the concept of “slashing” (used in the others protocols too); it consists of a dis-incentive to compromise the network. In fact the sum of all the bonds deposited needs to cover the entire liquidity of the pools. So, if a node wants to scam, it will have to pay a big amount of money (1,5x bond)
WHAT IS GOING TO HAPPEN IF THE LIQUIDITY POOLS RATIO (50–50) CHANGES?
This condition is called “unsafe state”. The problem is that bonds can’t cover all the capital into liquidity pools.
To solve this, ThorNodes’ rewards ads increased (staking APY), while those of Liquidity Providers decreased. So rewards are given proportionally in relation to the state that is current.
This quest for EQUILIBRIUM makes us discover the “intrinsic” value of $RUNE and its tokenomics
If liquidity of pools increases, then more bonds are needed for the equilibrium. So $RUNE’s value comes from the liquidity contained in pools, in particular by non-RUNE liquidity. Now estimates say that, to equilibrate a liquidity amount of 10 millions $ , 30 millions of RUNE are needed.
RUNE’s intrinsic marketcap is therefore 3x TVL
So, EQUILIBRIUM is a key for RUNE’s demand, and thanks to ThorSynths and ThorFi this is going to increase more and more.
CONCLUSION: This protocol leads us to the future of DeFi, in which swaps are done natively. This one lays the foundation of the future “standard” of DeFi.
Thorchain therefore, has a great vision and an ambitious project. This is surely a complex protocol. The creation of a native cross-chain ecosystem will probably face many new obstacles and many successes, and hardly but surely this will contribute for a technological improvement in blockchain and crypto world; in the communication among blockchains and projects, encouraging INTEGRATION and CO-OPERATION.
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