TL:DR
THORChain is a permissionless decentralized liquidity protocol that allows users to swap assets in a permissionless setting. It uses Tendermint and Cosmos-SDK to secure its network, while it uses Threshold Signature Schemes (TSS) for its leaderless primary vault.
Introduction
THORChain enables cross-chain liquidity and reduces the need for centralized exchanges and third parties within the Defi space.
It enables cross-chain swaps and yield generation on crypto assets like Bitcoin and Ethereum. This idea sprouted behind a group of developers in 2018 who participated in a Binance Dexathon.
How Does ThorChain Work?
What is THORChain? It's a robust layer-1 technology that provides quick and cheap transfers of assets (such as crypto-currencies) between two parties. THORChain is based on the Cosmos SDK and Tendermint. ThorChain works as a cross-chain permissionless decentralized exchange (DEX).
Further ThorChain also uses something called a Threshold Signature Scheme (TSS) to secure its leaderless vault. TSS coupled with Tendermint allows for a consensus mechanism that requires a two-thirds majority for funds to enter and exit the TSS vault. Talk about security.
In order for the ThorChain ecosystem to function properly, there are four key users:
Swappers: They are individuals looking to swap assets in the liquidity pool.
Liquidity Providers: They add liquidity to the pool and earn rewards as a result.
Node Operators: These are the individuals who stake a certain amount in order to operate a node. As a result of this, they are rewarded once they extract their staked amount.
Traders: A crucial component, these are individuals who use the platform to trade different assets and maintain a balance with the intention to make a profit.
Unlike many cross-chain swaps, ThorChain does not use wrapped assets, instead, it uses native assets that it allows its users to swap. These swaps are performed in a transparent and autonomous manner.
One question that comes into mind is where does ThorChain get these native assets? As a liquidity provider, users are incentive to provide liquidity on a chosen pool in exchange for rewards in the form of transaction fees and system rewards. Users deposit their assets in the pool which they can reclaim later on.
Further, as a liquidity provider, you can even propose new pools in which to deposit too. For instance, you can create a pool of Binance/Rune in which the depositor will need to deposit an equal amount of the asset in the pool. Traders can then trade Binance for Rune for vice versa.
Second, in order for this system to operate seamlessly and autonomously, ThorNodes are an essential component for that. These Nodes are independent and communicate with one another to facilitate cross-chain swaps. In exchange for securing the ThorChain network, they receive a portion of transaction fees.
It is important to note that in order to become a Node on the ThorChain Network you need to provide Rune as collateral. This is to ensure that the bonds don’t try to steal the assets. The amount of bond needed as collateral needs to be twice the amount in the pool.
How Does A Swap Work In ThorChain?
The golden age question, how is ThorChain able to swap native tokens instead of wrapped versions? To answer this question let's run through an example. Let's suppose a user want to trade/swap BTC for ETH. Users send their BTC to Thorchain. Once BTC enters the network there will be a BTC to RUNE swap. RUNE is the native asset of the ThorChain network.
Further, RUNE will then be swapped with ETH and sent to the swapper. This way the network allows for cross-chain swaps without using wrapped assets.
How Are Assets Priced?
The THORChain platform is built to be secure and reliable, and its decentralized structure enables trust-free asset swaps. The value of both the THORChain token and multi-asset swaps are regulated by a system of arbitrage traders that correct anomalies as they arise, creating an organic ecosystem where value is derived from actual usage.
THORChain brings new meaning to the phrase “decentralized liquidity pool”, acting as a vault manager that can price assets at lightning speed.
What Makes ThorChain Unique?
ThorChain is a decentralized exchange that allows for cross-chain swaps of native assets. Other features include:
Traders and Swaps
Can swap native assets on the platform.
Do not need to register their identity. All trades are anonymous.
Can access fair prices and trades without relying on external pricing mechanisms.
Can trade any day at any time.
Liquidity Providers
Can earn yield on native assets like BTC, ETH, BNB, among others.
Not subjected to lock-in periods.
Do not need to be registered.
Can be protected from Impermanent Loss (IP) up to 100% after they have been in the pool for 100 days.
Node Operators
Earn rewards while securing the network.
Do not need to be registered.
Being anonymous is encouraged.
What Is Rune?
RUNE is the native coin of THORChain. Within the network, it acts as a base pair for users to swap RUNE for any other supported asset.
It has a supply of 500 million and four main use cases: settlement, security, governance, and incentives.
Settlement
RUNE acts as a settlement asset for all liquidity pools. For each pool a 1:1 ratio of RUNE:ASSET is required. For instance, a pool of $100k worth of ETH must also have $100k worth of RUNE.
Security
Because the integrity of the network is at stake, a node operator is financially incentivized to act in the best interest of the network to optimize its performance.
RUNE bonds ensure nodes will behave honestly through financial loss if they do not. They must bond twice as many RUNE as the amount they added to the pool.
Governance
RUNE holders can choose which pool to give priority to. By holding this token you become part of the decision making process.
Incentives
Block rewards and transaction fees are paid out to liquidity providers and Node operators in RUNE. You can also use RUNE to pay gas fees.
How To Buy Rune?
You can buy RUNE on Binance.
Log In/ Create An Account
If you haven’t done so already you can create an account with Biannce. Keep in mind Binance is a KYC platform so you need to provide some form of ID. If you have an account already you can just log in.
Search For RUNE
Once logged in click on trade and search for RUNE in the search box.
Select Amount and Buy
Once you find the token select the amount you want to purchase and select confirm the order.
Final Thoughts
ThorChain is a decentralized exchange that seeks to be the premier destination for decentralized cross-chain swaps. It seeks to build an ecosystem where traders can swap for different assets.
Rewards are given out to liquidity providers and Node operators in the form of RUNE, the native token on the chain. RUNE is designed for four things; Settlement, Security, Governance, and Incentives.
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