>Disclaimer: This report is for CoinSutra VIP members. This research report does not constitute financial advice and is based only on current market conditions. High volatility and risk are inherent in investing in crypto-assets. You should only invest what you can afford to lose. This is not financial advice and we are not financial advisors. #DYOR
In the past decade, blockchain technology has made great strides. This technology could disrupt many industries, thanks to the availability of so many applications and networks.
However, the bottleneck is still present. Every network and application is isolated from the other. Take Uniswap, for example.
Uniswap, a Decentralised Exchange (DEX), is built on the Ethereum blockchain network. This exchange can be used to swap crypto tokens. It’s not possible to swap Ethereum-based tokens because it is built on Ethereum. Non-Ethereum tokens must be listed in Synthetic or Derivative forms, also known by Wrapped Tokens. Platforms like Uniswap do not have cross-chain functionality.
Let’s now take Binance, which offers users a seamless cross-chain experience. You can easily exchange ETH and BTC on Binance. Both tokens can be used to access different networks. Binance’s biggest problem is its centralization and custodial nature. This goes against the core values that the blockchain industry is built upon.
Most crypto transactions still take place through centralized exchanges like Binance, Coinbase and FTX. These exchanges are the ones that have complete custody of your funds. If there is a hack on an exchange, your funds could be lost. These exchanges handle such a large volume of trading volume that they could become the industry’s future banks with their centralized power.
There was therefore a need to find a solution. Ideal blockchain ecosystems are decentralized and cross-chain. This is because no one platform or network can dominate the industry. All the assets and applications can be interoperable.
Thorchain is an attempt to do this. Let’s now find out more about this project.
What is Thorchain?
Thorchain is a Cross-Chain Uniswap to laymen. There is more to it.
Thorchain is a Layer-1 blockchain network that was built using Cosmos SDK (Software Development Kit). Thorchain can be interoperable with other networks because of this. Thorchain’s cross-chain liquidity model is built on this network and allows you to:
Even if the assets are related to different blockchain networks, you can swap crypto assets. Swapping ETH (Ethereum Network), with BTC (Bitcoin Network) is one example. This swap is also decentralized and not custodial.
As of April 20,22, the following assets are supported by CSI:
BitcoinEthereumBinance CoinLitecoinDogecoinBitcoin CashLUNA (Terra)UST (TerraUST)
Who are the founders of Thorchain
Thorchain was developed by an anonymous group of developers. We don’t know the background of any of our lead members.
Thorchain functions more as a community project without any command or control structure. This is more information.
Let’s now look at the potential uses of the Thorchain Protocol.
What are the use cases of Thorchain?
These are the use cases for Thorchain’s network:
Thorswap, a multi-chain DEX (Decentralised exchange) built on the Thorchain blockchain network, is a multichain DEX (Decentralised exchange). It utilizes Thorchain’s Liquidity Protocol where you can swap tokens and provide liquidity.
Thorchain – Thorswap
You can find more information in our Beginner’s Guide to Liquidity Pools.
2. Thorchain Name Service
Thorchain Name Service
The Thorchain name service, a Domain Name Service that is similar to Ethereum Name Service, can be registered. Thorchain allows you to register multichain domain names that you can use for sending or receiving funds. A Thorchain domain name can be registered by a receiver. The sender will simply add the domain to the transaction interface, and not a complex wallet address.
This makes it easier to send and receive crypto funds.
Here you can find Thornames.
3. Thorchain Synthetics
Thorchain Synthetics is a derivative of Layer 1 crypto assets. ETH, for example, is a cryptocurrency natively to the Ethereum Network. sETH, a synthetic crypto-token that is issued on Thorchain’s network, would have the same value as ETH. A synthetic asset has the advantage of being able to trade sETH on Thorchain, without having to pay a high Ethereum Network gas fee. The transaction time would be also significantly shorter.
For synthetics issued by Thorchain assets are backed by 50% of the asset whose synthetic form is created, and 50% RUNE tokens.
Similar synthetic tokens are already provided by projects like Synthetix or Mirror Protocol. Mirror Protocol can be found here.
You can also read about Thorchain Synthetic Assets by clicking here.
4. Digital Collectibles
Thorchain – Non Fungible Tokens (NFT)
Thorchain can be used to create Non-Fungible tokens, just like any Layer 1 blockchain network. There are currently several collections on the network such as Thorchain Collectibles and THORGuards. PixelTHOR, ThorchainPunks and ROON.
You can refer to our Beginner’s Guide to NFTs if you are unfamiliar with the concept of NFTs.
What is a Swap transaction in Thorchain?
Let’s say you want 1 BTC to be swapped for ETH. This means that you would be buying ETH and selling BTC. Three transactions would result.
BTC is sent to Thorchain Vault from your wallet. ETH is sent to your Thorchain vault wallet. RUNE is transferred to the BTC+RUNE liquidity pools.
How does a Thorchain Transaction Work?
Read more about Thorchain Swap transaction.
The protocol will now charge the following costs for this transaction:
Inbound transaction gasoline fee
Transfer of BTC from your wallet into Thorchain Vault will incur a fee. The fee would be in BTC. Let’s say that the gas fee is $100.
Fee for outbound transaction gas
Transfer of ETH from Thorchain Vault into ETH – Fee paid in ETH. Let’s say that the gas fee is $100.
Slippage refers to the cost of asset liquidity changes. Slippage can be found here. Let’s say that the slippage fee is $100.
This is the fee you would pay for the swap:
ParticularsAmount (Estimate). Inbound Gas Fee$1003 times Outbound Gas Fee$300Slippage Charge$100Total Fee$500
Thorchain charges a fee for this information.
Notice: The transaction cost above is only an example of the mechanism. The actual gas cost will vary depending on how much traffic is being generated.
What are the components of Thorchain?
These are the main components of Thorchain:
1. Parties involved
These are the three types of people who are involved in Thorchain’s ecosystem:
TradersLiquidity ProvidersNode Operators
ThorchainTraders: Parties involved
A trader is someone who uses the platform to swap crypto assets. A Trading Fee is required to use the Thorchain Swapping Service. This is the main revenue source for the platform.
These users deposit their assets into the Liquidity Pools to earn yield. The protocol pays this yield from the fees collected from traders. 33% of the revenue from protocol is distributed to liquidity providers.
These operators are responsible for running nodes on Thorchain, also known as Thornodes. These operators are also responsible for running nodes on every supported chain, such as Ethereum and Bitcoin, Terra Network, Terra Network, and others. 67% of the revenue from the protocol is distributed to liquidity providers. Private keys of assets are used to help in the Liquidity Pools. They are kept with node operators decentralized. 2/3rds of the nodes must confirm a transaction in order to process it successfully.
2. Thorchain Network Nodes
Thorchain Node Map
Thorchain, as we have already said, is a network that uses computer nodes. These nodes are also called Thornodes. The number of active nodes currently is approximately 100. This number is expected to increase to 250 over the long-term.
These node operators ensure that the network has a high transaction throughput. The Thornodes all work anonymously and don’t support public delegation.
All private keys are also stored on these nodes in an uncentralized fashion. At least 2/3rds of the Nodes must approve any transaction.
Nodes of the Thorchain network must secure RUNE tokens as collateral. The Total Value of Thorchain assets would equal the amount of RUNE tokens that must be locked.
Additionally, collateral can be reduced if a node operator is not in compliance. This is how you keep the nodes under control.
3. Thorchain Liquidity Pools
Thorchain Liquidity Pools
Thorchain ecosystem’s most significant component is the Liquidity Pools. The entire ecosystem revolves around these pools.
These pools are two-way asset pools, where one asset would always remain RUNE, which is the platform’s in-house token. The pool would be made up of RUNE and ETH in a 1:1 ratio. Similar to the above, a BTC pool would contain RUNE and BTC in a 1:1 ratio.
As mentioned above, 33% would be distributed to these Liquidity Providers.
Liquidity providers will only charge the normal gas fee for funds that are deposited into a liquidity pool. Inbound fee The outbound fee for withdrawing these assets is three times higher than the average gas fee.
Thorchain provides Impermanent Loss protection to its Liquidity Providers. If there is an impermanent loss to Liquidity Providers, the protocol compensates this loss in the form RUNE tokens. For the first 99 days of liquidity provision, impermanent loss protection will only be partial. You will continue to receive complete protection after that.
Our Beginner’s Guide will help you learn more about impermanent loss.
4. Thorchain Vaults
Two types of vaults are used to store the total protocol assets: nodes bonded assets and pool assets.
Inbound Vaults, a.k.a. Asgard TSS Vaults
These vaults house most of the protocol’s assets. At least 2/3rds of the nodes must approve any transaction made through these vaults. The transaction is extremely secure but slow.
Outbound vaults are the second type.
Outbound Vaults, a.k.a. Yggdrasil Vaults
These vaults are managed by individual node operator. This vault is only used for transactions that require the signature of the respective node operator. The transaction is therefore faster but less secure. Security-wise, assets stored in an Outbound vault would not exceed 25% of collateral that was provided by the node operator. The node operator would have no incentive to steal the funds.
Learn more about Thorchain Vaults.
5. RUNE Token
RUNE is the Thorchain ecosystem’s in-house token, and acts as its backbone.
Token Economy of RUNE
ParticularsAmountMaximum Supply (Source)500 MillionTotal Supply335 MillionCirculating Supply330.7 Million(66% of the Maximum Supply)Token Price (as of 13 May 2022) ($)$ 3.58Market Cap ($)$ 1.18 Billion24 Hour Trading Volume ($)$ 218 MillionTotal Value Locked ($)$ 225 Million
Initially, RUNE had a maximum supply limit of 1 billion. In October 2019, however, this limit was reduced to half of its original supply, which is 500 million. To reduce the total supply, 1 Billion tokens were initially minted. Later, the remaining tokens in Reserves were burned to reduce their supply. Read more about the RUNE token burning here.
The total supply is 335 million, while the circulating supply of 330.7 Million is 66%.
The token price was $3.58 as of 13 May 2022. This makes the market cap approximately $1.18 Billion. The platform also has a Total Value Locked (TVL), of $225 Million.
Particulars%ageNo. of TokensSeed5%25 Million Initial DEX Offering (IDO)16%80 MillionDevelopers10%50 MillionOperational Reserve (Company)13%65 MillionCommunity Reserve12%60 MillionNodes and LP Rewards (10+ Years)44%220 MillionTotal500 Million
RUNE Token Distribution
The RUNE tokens remaining are expected to be released in the following way until 2028.
RUNE Emissions Schedule
Additionally, RUNE incentives could be given to Liquidity Providers and Node Operators.
Schedule for RUNE Emissions
Use Cases for RUNE token
These are the RUNE tokens’ uses:
The fees charged by traders are in RUNE. Thorchain is governed by RUNE holders. ThorNodes must bond RUNE tokens in order to validate transactions. Each liquidity pool has a half share of RUNE tokens. You will need to deposit the same amount of RUNE tokens if you wish to deposit Ethereum in the Thorchain liquidity pool.
Also, RUNE adds a fourth dimension to the protocol’s utility:
Liquidity All protocols’ liquidity pools have 50% RUNE. Security All node operators must bond RUNE tokens as collateral. The collateral can be taken away if the node operator is not following protocol guidelines. Incentives RUNE is used to pay liquidity providers, traders, and node operators.
Where can I buy RUNE Tokens?
The following crypto exchanges allow you to purchase RUNE tokens:
Centralized ExchangesRemarksBinanceAvailable for all parts of the world except the US and sanctioned countries. US Residents should use Binance.USByBitNot available in the US and Singapore.FTXNot available in the USMEXC GlobalNot available in the USDecentralized ExchangesRemarksBinance DEXGas fee will be charged in addition to the trading fee.ThorswapGas fee will be charged in addition to the trading fee.
Where can I buy RUNE Tokens?
These wallets are where your RUNE tokens can be kept safe:
Type of WalletName WalletLedgerHardware WalletTrezorMobile WalletMetamaskMobile WalletTrust WalletBrowser WalletXDEFI
You can find more information about Crypto wallets in our Crypto Wallet Guides:
Crypto Wallets for Beginners: Best Crypto Hardware WalletsBest Bitcoin WalletsBest Ethereum Wallets
Thorchain Network Statistics
Total Value as of 30 April 2022
Thorchain Total Value Locked, (TVL).
What is Thorchain’s Revenue Model?
These are the sources of income and expenses that Thorchain receives:
IncomeExpensesToken Swap feeBlock Rewards (67% Nodes and 33% LPs),Thorname Registration FeeImpermanent loss ProtectionSynth Minting ChargeSynth Staking YieldsNode Cutting PentiesAny other rewardsNetwork Fee for on-chain transactions
Thorchain will continue to work on new features in the future.
Market ordersLimit ordersLeverage tradingP2P (Peer-to-Peer) LendingStakingMore integrations of network (including privacy and layer 2 chains),More integrations of DEX (Decentralised exchanges) Lending and Savings
This is why we are aiming to create a decentralized alternative ecosystem for centralized exchanges. Read more about Thorchain Roadmap.
Let’s now look at the pros and cons.
Thorchain: Benefits and limitations
What are the benefits of Thorchain?
These are the benefits of Thorchain protocol:
Thorchain has significantly simplified cross-chain operations. It is possible to swap assets with one another, regardless of whether they are part of the same blockchain network.
This would also boost the cross-chain DeFi ecosystem.
Anonymous and decentralized
Thorchain’s entire process for swapping money is non-custodial and decentralized. Furthermore, KYC is not required for user identification. Any Decentralised Exchange, (DEX), that wishes to provide cross-chain services, can just source liquidity from Thorchain.
Bounties for bugs
Thorchain offers a Bug Bounty program in which anyone can identify a possible vulnerability in the protocol will be rewarded. Maximum bounty: $500,000.
Learn more about Thorchain bug bounty by clicking here
Thorchain has undergone several security audits in the last few months. This was after $8 million were stolen from the protocol in August 2021. Read more about the Thorchain Hack and Security Audit.
Let’s now see the potential downsides to this project.
What are the Thorchain’s limitations?
These are the limitations of Thorchain protocol:
Transaction fees high
Thorchain charges a high transaction charge, as shown in the above example.
However, there is currently a proposal to modify the structure of outbound fee, which could lower the burden on Liquidity Providers and Traders. The proposal can be found here.
Locked at a Low Total Value
The current TVL for the platform is very low considering the Thorchain cross-chain ecosystem. To increase adoption, the project will need to add more features as well as lower the transaction fees.
The network has 100 active operators at the moment, making it a little centralized. This problem is present in every Cosmos SDK project. Practically, increasing the nodes would lead to a longer transaction time, which makes the network inefficient. This may not change in the near future.
Conclusion – Thorchain Fundamental Analysis
Thorchain is a cross-chain liquidity project that has the potential to be one of the largest in the market. The protocol is conceptually a moot in the market. Not many projects offer complete interoperability across different blockchain networks.
People’s faith in the central crypto ecosystem is waning because it poses a risk to individual investments. DeFi will become a major crypto market in the future and this will increase the demand for these projects.
Therefore, RUNE is a great token to keep for the long-term. For a few months, RUNE’s price movement can be range bound. A Grid Trading Bot could prove to be a lucrative avenue.
Leave a Reply