Trade Assets on THORChain
Trade Assets give active traders the experience of trading on a Centralized Exchange, completely onchain without compromising on transparency or security.
Summary
A new class of primitives have been released on THORChain — Trade Assets. Trade Assets are twice as capital efficient than synthetic assets, meaning arbitrageurs can be twice as effective with the same amount as capital. Trade accounts settle with THORChain block speed & cost, meaning anyone can swap at 6 second finality without excessive Layer 1 (L1) blockchain fees. Trade assets can be redeemed for native assets anytime with no slippage, making them ideal for arbitrageurs and high frequency traders.
Advantages of Trade Assets
- Backed 1:1 by native assets secured by THORChain
- Mint or redeem Trade Assets with no slippage (only L1 gas fees)
- 2x capital efficiency of Synthetic Assets
- Traders only pay native THORChain fees ($0.2) when swapping — no L1 gas fees
- No outbound fee when swapping to a Trade Asset
- Finality with THORChain block speed (6 seconds)
- Not subject to outbound delays or confirmation counting
What are Trade Assets?
Trade Assets are native assets custodied by THORChain but held outside of the liquidity pools. Users receive a credit to their THORChain address. Trade Assets are not held directly by user wallets, unlike synthetic assets. The Trade Assets are held by a protocol-controlled module and users are credited their share of the assets in the module.
Conceptually, Trade Assets are similar to having a deposit on a centralized exchange, but with the transparency that comes with being onchain. Funds are held 1:1 as L1 assets by THORChain until the user is ready to withdraw back to self-custody.
Aligning with the THORChain Vision
Trade Assets provide the experience of trading on a centralized exchange, without compromising on transparency or security. Trade assets represent the next step into making THORChain more friendly to high-frequency traders. Since Trade Assets have twice the capital efficiency of Synthetic Assets, arbitraging pools becomes much more efficient, leading to tighter prices with other exchanges.
Trade Accounts come with many advantages for high frequency traders, including reduced fees. Trade Assets are held by the protocol, not individual wallets, so there is no outbound fee to be paid when swapping to a trade asset. There is no slippage fee to create a Trade Asset or redeem it back to its native counterpart. Simply deposit and withdraw from the Layer 1 blockchain to your trade account.
Other new features on THORChain will be built on top of the Trade Asset primitive — including Limit Orders (Orderbooks). Open orders will be held as Trade Assets and execute automatically once the price limit is reached on THORChain
How to mint or burn Trade Assets?
There is a unique memo syntax to mint or burn trade assets, denoted by the prefix `TRADE+` or `TRADE-`. No need to specify the asset name, since that is inferred from the asset received.
No slippage fees apply when minting or burning Trade Assets, only L1 gas fees. Depositing 1 BTC.BTC will result in the crediting of 1 BTC~BTC. Redemption of 1 BTC~BTC to BTC.BTC will result in 1 BTC.BTC (minus L1 BTC gas fees).
Trade assets are minted into the network’s Trade Asset module, not into the user’s wallet.
How do Trade Assets differ from Synthetic Assets?
Trade Assets can arbitrage the pools faster and with more capital efficiency than Synthetics can. This is because Synthetics adds or removes from one side of the pool depth but not the other, causing the pool to move only half the distance in terms of price. For example a $100 RUNE → BTC swap requires $200 of Synthetic BTC to be burned to correct the price. Trade accounts have twice the efficiency, so $100 RUNE → BTC swap would require $100 from trade accounts to correct the price. This allows arbitrageurs to restore big deviations quicker using less capital.
The backing model differs for the two asset types. Synths are backed by the liquidity in the pool — 50:50 RUNE:ASSET. Trade Assets are backed 1:1 by the native asset, and secured outside of the pool by the excess security budget of the network.
Trade Assets and Economic Security
Trade Assets are the first assets on THORChain to be held outside of the liquidity pools. This means that not all of the native assets in the TSS Vaults are held by the pool, and thus paired with RUNE in a 1:1 ratio.
In order to maintain the economic security of the network, where validators always have greater value at stake than the L1 liquidity of the network, the behavior of the Incentive Pendulum has been changed. The incentive pendulum now uses the value of all assets in the vaults, rather than just the value in the pools to determine the split of rewards between Nodes and LPs. This is necessary to ensure that incentives are aligned such that the value of the vaults does not eclipse the economic security of the validators.
Since Trade Asset value is not paired with RUNE, there will also be security measures implemented to ensure the economic security of the protocol. If, at some point in the future, the value of the vaults grows beyond the value at stake by the validators, Trade Accounts will begin to realize a negative interest rate until the ratio of vault asset value to bond value is below 1. This functionality is not currently implemented at the time of launch.
Where to get more information?
- Twitter Spaces — held most weeks, subscribe on RSS or wherever you get your podcasts
- THORChain University — educational content, monthly posts, & discord server
- GrassRoots Crypto — update and explanation videos
Community
To keep up to date, please monitor community channels, particularly Telegram and Twitter:
Website | Documentation | Twitter | Telegram Community | Telegram Alerts | Community Discord | Developer Discord | Explorer | RuneScan | Reddit | Gitlab | Medium | Linktree | Thorcharts
