By Aidan Kalish | Crescent City Capital Market Analyst Intern
THORChain is a liquidity protocol that enables users to effortlessly exchange digital currencies. THORChain is similar to other decentralized exchanges (DEXs) but the difference is that many DEXs are limited to operating strictly on one blockchain while THORChain is cross-chain compatible, making it easy to send assets between networks.
THORChain has no CEO or executives in place. All personnel in charge of the project remain anonymous. A representative of THORChain claims that the anonymity of the project’s members is to protect the project and ensure its decentralization.
“THORChain itself is a decentralized project with no company, no CEO & no founders. The project has always been open-source, transparent, auditable with a fluid team. There is no command & control structure and the community has always had the flexibility and freedom to influence the direction and make key decisions.”
There are four key roles in the system:
- Liquidity providers who add liquidity to pools and earn fees and rewards
- Swappers who use the liquidity to swap assets ad-hoc, paying fees
- Traders who monitor pools and rebalance continually, paying fees but with the intent to earn a profit
- Node Operators who provide a bond and are paid to secure the system
The THORChain network is serviced by THORNodes. Each THORNode is comprised of several servers in a cluster. All THORNodes communicate and operate in cooperation to create a cross-chain swapping network. To execute cross-chain operations, THORChain makes use of the Bifrost protocol. This protocol leverages THORChain’s proof-of-stake validator (PoS) system and multi-signature (multi-sig) accounts to create and secure these bridges. One of THORChain’s plans is to implement Continuous Liquidity Pools (CLPs) within the network. The purpose of the system is to incentivize users for supplying liquidity in exchange for fees and rewards. This allows traders to easily access and exchange directly from the token pools, giving the CLPs a constant liquidity supply. THORChain also incorporates an Incentive Pendulum to ensure that the network remains balanced. This prevents the network from becoming insecure or inefficient by altering how node operators and liquidity pools are rewarded. This boosts incentives for node operators and decreases payouts for liquidity suppliers when the network becomes insecure. When a network becomes inefficient, incentives for liquidity suppliers increase, while rewards for node operators decrease.
THORChain is powered by its native token RUNE. RUNE serves four critical functions:
- Liquidity: The RUNE token serves as the main settlement layer for all transactions.
- Incentives: RUNE tokens are used to pay transaction fees and gas fees, and are distributed as prizes and incentives.
- Security: RUNE secures the THORChain network by providing resistance with Sybil attacks.
- Governance: During the liquidity pool listing procedure on THORChain, the asset with the greatest RUNE commitment is listed first.
At the time of writing, RUNE has a $520.4 million market cap and a $786.8 million fully diluted market cap. The token began 2022 trading at $6.96 and has fallen to a current value of $1.57.
THORChain achieved Mainnet in the first half of 2022, bringing the network from a research project to a fully functional, feature-rich protocol with a large ecosystem and strong community. There have already been over 9.8 million transactions conducted resulting in a total trade volume of over $9.2 billion (USD). THORChain’s CLPs also open the door to features never seen before on a DEX, like leverage trading, market orders, peer-to-peer credit lending, limit orders, and other features that could be previously found only in centralized ecosystems. Given THORChain’s short-term success since achieving Mainnet, the array of features provided, the ability to have cross-chain interactions, and plans for continual improvement, THORChain is in a strong position for drastic growth. This may encourage long-term investment in RUNE as the network’s use will only grow as Web3 continues to build.
Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. Please conduct your own due diligence before making any investment decisions.