THORChain’s Next Phase: Adoption, Growth, & Scaling
Summary:
The past year for THORChain has been focused on the network security and stability phase. With the recent achievement of Mainnet, this signals the transition to the scalability and adoption phase for THORChain in order to drive more volume, swaps, and total value locked (TVL) towards the network.
Three Pillars of Scalability:
- Total RUNE Bonded into Nodes
- Total Assets in Liquidity Pools
- Swap Volume
Even when one of these pillars is fixed, another becomes an area of focus. THORChain will always achieve scalability by focusing on and balancing the three Pillars of Scalability.
Node Bond and Incentive Pendulum:
Node bond within THORChain serves as security to the pool liquidity and there needs to be a balance between node bond and pooled liquidity. There could be situations where there is too much liquidity or too much bonded into nodes. A mechanism called the incentive pendulum helps to balance the RUNE bonded into nodes and assets in the LPs by incentivizing block rewards and fees to achieve an optimal balance. By increasing the RUNE bonded into nodes this helps secure the network further economically and allow for more liquidity to be added.
The incentive pendulum distributes rewards optimally when the total node bond is twice as valuable as the amount of RUNE in the liquidity pools.
Deeper Liquidity Pools:
By incentivizing deeper continuous LPs, this incentives more swap volume because there will be less slippage. This further incentivizes more trades for the protocol due to better trading rates contributing to the next factor of swap volume.
Swap Volume:
By increasing the swap volume, more fees are generated for LP’s, resulting in more liquidity being provided which creates even less slippage and better exchange rates for traders.
Proposed Features & Their Effect on Three Pillars of Scalability:
- Lite Nodes
Pillar: Increase RUNE bonded into nodes
- Multi-sig Wallet
Pillar: Increase RUNE bonded into nodes, increase total assets in LP, generate more swaps and volume
- Single sided asset yield
Pillar: Increase liquidity
- DEX Aggregation
Pillar: Increase total swaps and volume
- Chain Integrations
Pillar: Increase liquidity, generate more swaps, and volume
- Integrations with more wallets and DEXs utilizing THORChain
Pillar: Increase liquidity, generate more swaps and volume
- Orderbook
Pillar: Increase liquidity
- THORFi
Pillar: Increase liquidity
Disclaimer: These proposed features are all works in progress and the designs may change or be removed based on feasibility of implementation and security. The community and nodes collectively decide the future of THORChain, not any individual or organization. This article is drafted and edited by THORChain community members.
Lite Nodes:
Becoming a liquidity provider requires low technical skill and low amounts of capital. Running a validator node requires high technical knowledge and high capital (hundreds of thousands of RUNE) which may lead to an incongruence in scaling the total amount of bonded rune on the network, limiting the amount of liquidity that can be economically secured.
This feature would allow RUNE holders with lower amounts of capital to contribute bonded RUNE to the network and profit without being a validator. This in turn helps to scale the RUNE bonds (security budget), allowing for more liquidity to be added to the pools.
Multi-sig Wallet :
THORSwap has built a feature called THORSafe. THORSafe supports a multi-sig wallet on the THORChain network, compatible with Native RUNE which can be used for bonding nodes, providing liquidity, and synthetic assets. A multisig is a wallet that can be operated by multiple chosen signers, increasing security and mitigating risks. Utilizing a multisig wallet, signers can pool together to bond a node which helps secure the network or add to a liquidity position. Thorchads, DAOs and institutions can provide liquidity together, make swaps, or hold RUNE in their wallet.. This could help scale nodes, deepen the liquidity pools and increase trading volume.
Note: there is always a level of trust between the individuals providing the capital in RUNE and the individual running the node itself. However, multisig addresses in combination with pooled validators almost entirely removes the possibility of a trusted validator having the ability to steal capital from a RUNE provider.
Single sided asset yield:
Currently, providing Layer 1 (L1) assets paired with RUNE is the only way to provide liquidity on THORChain. This feature will allow users to earn yield on their Layer 1 assets without price exposure to RUNE.
Details:
- A Layer 1 asset holder can mint a synthetic asset on THORChain and lock the synthetic asset in a vault to earn yield without RUNE price exposure
- Yield on synthetic assets will be a maximum of 50% of the current yield of a dual-sided liquidity provider
- Since there is a cap on the amount of synthetic assets that can be minted, the THORChain Reserve will become a liquidity provider to ensure that there is always unused synth utilization. This feature creates Protocol Owned Liquidity (POL).
- This feature will roll out only for high-depth gas assets and stablecoins (eg. BTC, ETH, BNB, DOGE, ATOM, AVAX, ERC-20 USDC, BEP-2 BUSD, etc)
- This design does not include single-sided yield for RUNE
DEX Aggregation:
The current native cross-chain swaps for THORChain are focused on short-tail L1 assets such as BTC, ETH, BCH, DOGE, ATOM, LTC, and BNB. This will enable THORChain to tap into liquidity that is siloed on their respective blockchains. Capturing even a fraction of this volume through DEX aggregation will bring a large amount of volume, fees, and more liquidity to THORChain. Currently, DEX aggregators that utilize THORChain are being worked on by THORSwap, Defispot, Xdefi, and Rango.
In one transaction, a user can trade an ERC-20 to a THORChain supported asset or supported L1 asset on THORChain and vice versa.
Chain Integrations:
THORChain will continue to add on more chains in order to support more assets for swapping, providing liquidity, and DEX Aggregation.
- Cosmos ($ATOM) was just integrated on July 13th, 2022
- Avalanche ($AVAX) was also deployed to Stagenet for testing and is the next chain to be integrated. Avalanche will be released in conjunction with its aggregator for long-tail liquidity access from the start.
- Other integrations are being worked on by their respective communities including Dash ($DASH), Haven ($XHV) , and Monero ($XMR).
- New chain integrations must meet the following criteria: https://gitlab.com/thorchain/thornode/-/tree/develop/docs/chains
- An ADR should be opened in the THORChain Developer Discord for new chain integrations to garner support or dissent from node operators
See the Weekly Developer Update for more info: https://medium.com/thorchain/dev-update-147-150-74743ccf2a7b
THORChain DEX and Wallet Integrations:
The more the wallets and DEXs that utilize THORChain, the more swaps, fees, and volume that is routing through the network. Any potential wallets or DEXs looking to integrate are encouraged to visit the link below for integration steps to tap into the power of native cross-chain swaps. Developers interested in integrating THORChain liquidity into their service or dApp can contact Nine Realms for integration support and visit the developer documentation.
Orderbook:
THORChain uses Continuous Liquidity Pools (CLPs) to execute trades instead of a traditional orderbook. CLPs provide many benefits including always having a counterparty to take the trade, however there are other use cases in market making such as setting a limit order.
Using synths with a certain order memo instead of swap, a user can essentially put in a limit order. Lets say a user wants to buy BTC at 20k with USDC. User deposits USDC which is then swapped to its respective synthetic and owned by the protocol until your price is met for the limit order for execution. The design enables the orders awaiting execution at a certain price to contribute to pool depths and produce revenue for LP/nodes.
THORFi:
The goal for THORFi is to attract more liquidity to the network and to develop a long-term RUNE premium. THORFi can achieve more liquidity with the lending features and net burning of RUNE as a result of the mint/burn mechanism.
Given what happened with the crash of Terra’s UST/LUNA, many community members were pushing back against the idea of an algorithmic stablecoin and design that changes the supply of RUNE based on THORFi demand. THORFi is currently tabled, however the design is not scrapped and will be revisited at a later point.
Conclusion:
With Mainnet recently achieved, THORChain is transitioning towards its next stage of growth. THORChain has 3 Pillars of Scalability that need to be worked on. The phase of growth requires an increase of pool depth and volume and the proposed features are designed to enable this. By creating deep continuous liquidity pools with less slippage, this incentivizes more trading, fees, better rates, and less fragmented liquidity. Liquidity begets liquidity. All of the swaps, liquidity, and volume works synchronously to scale and grow THORChain’s native asset liquidity pools. Onward to scaling Thorchads. ⚡️
This article was drafted by Asian. Edited by familiarcow and Grassroots Crypto.
THORChain Community Links:
- Website: https://thorchain.com/
- Twitter: https://twitter.com/thorchain_org
- Telegram Community: https://t.me/thorchain_org
- Telegram Announcements: https://t.me/thorchain
- Discord: https://discord.gg/c4EhDZdFMA
- Reddit: https://reddit.com/r/thorchain
- Github: https://github.com/thorchain
- Medium: https://medium.com/thorchain
- Linktree: https://linktr.ee/thorchain
