Started from the cross-chain “Uniswap”
About Thorchain, Blue Fox Notes has been introduced many times before. Over the past year or so, Thorchain has undergone many changes. Thorchain’s goal is to become a cross-chain “Uniswap” and a decentralized cross-chain exchange protocol in the encryption field. Users can directly exchange assets of different chains such as BTC, ETH, BNB, etc. It is not through the form of asset packaging (such as wBTC, wETH) to complete the cross-chain, but directly through the decentralized method to complete the exchange. Blue Fox Notes introduced Thorchain last year, “Thorchain: Operation Principle and Token Mechanism”, “Value Capture of RUNE” and so on.
RUNE token mechanism and value capture
Thorchain realizes cross-chain direct exchange, and also has an AMM model, a liquid asset pool, and each token exchange will be exchanged through RUNE tokens. When a user exchanges ETH for BTC, it will include the transaction of converting ETH into RUNE and the transaction of converting RUNE into BTC. RUNE is the exchange medium, and Thorchain is the decentralized ledger that completes these transactions.
In these cross-chain transactions, the Thorchain node will verify that one of the assets has been transferred, and then sign the authorization to send the corresponding other chain asset to the transaction user address on the chain. In such a verification process, it is necessary to ensure the honesty of Thorchain nodes. To achieve this, the nodes need to pledge RUNE, and the amount of pledge is twice the liquidity of the entire market. This mechanism will cause a large number of possible locks on RUNE, thereby ensuring that the node does not do evil.
To make a simple calculation, assume that Thorchain’s liquidity pool has a total of 100 million U.S. dollars (BTC, ETH, BNB and other assets). In order to form a token pair, it is necessary to configure RUNE with the same value of 100 million U.S. dollars. This is not the end. At the same time, the nodes in Thorchain need to pledge more than 2 times the RUNE, which is 200 million US dollars of tokens. In this way, 100 million US dollars of liquid assets will lock up 300 million US dollars of RUNE assets.
Assuming that the Thorchain liquidity pool reaches the level of Uniswap today, which is about US$8 billion, this means that at least US$24 billion worth of RUNE is required to participate in its network, which does not include non-staking RUNE. In other words, if Thorchain has a chance to reach the current Uniswap liquidity, logically its market value will be higher than Uniswap (current uniswap is about 20 billion U.S. dollars).
Of course, there are prerequisites here, and Thorchain’s liquidity must reach the scale of Uniswap. Therefore, how high RUNE can reach depends mainly on how large its liquidity scale will be. At present, Thorchain is in the preliminary stage of operation. For safety, Thorchain will restrict its multi-chain Chaosnet to the upper limit of liquidity. If the upper limit is lifted in the future, it may lead to an increase in the demand for RUNE. The assets currently supported by Thorchain include ETH, SUSHI, YFI, USDT, BTC, BNB, LTC, BCH, ALPHA, etc.
With the development of Thorchain, it can also introduce more chain assets, such as Polkadot, Doge, ETC, LTC, etc.
In such a structure, Thorchain balances between liquidity providers and nodes. Under the current mechanism, of all locked RUNEs, two-thirds of them are pledged locks by nodes, and one-third are locks in liquidity provision. When the RUNE pledged by a node is too small, the block reward and transaction fee will tilt towards the node; when the node pledges too much RUNE, the block reward and transaction fee will tilt towards the liquidity provider.
(Thorchian’s balanced structure, Thorchain)
Thorchain and the cross-chain exchange layer of crypto assets
The Thorchain protocol not only develops cross-chain DEX by itself, but also provides cross-chain services for other encryption applications. For example, the current encryption exchange ShapeShift integrates Thorchain, which allows users to directly exchange cross-chain tokens. In the past, users needed to exchange BTC into ETH through a centralized exchange or a tokenized cross-chain model, but now it can be done directly through the Thorchain protocol.
(ShapeShift integrates Thorchain protocol, Shapeshift)
In addition, XDEFI wallet also plans to integrate Thorchain. As more and more exchanges and wallets integrate the Thorchain protocol, this has the opportunity to make Thorchain a cross-chain exchange layer for decentralized assets in the encryption field.
ThorFi and more possibilities
(ThorFi framework, Flyacor)
As can be seen from the above figure, ThorFi plans to expand the territory of Thorchain. In addition to decentralized cross-chain exchange, it also plans to introduce lending, synthetic assets, leverage transactions, etc. When users deposit Layer1 assets (BTC, ETH, LTC, etc.), as a liquidity provider, they can earn various fees: block rewards, loan income, token pool curation fees, synthetic asset generation fees, other incentives, etc. . And its LP position can be reused to obtain more income.
In other words, ThorFi wants to enter the entire DeFi field. Its essence is to improve the utilization of its ecological assets and bring more benefits to liquidity providers. This will facilitate the entry of more liquidity, thereby capturing more value for RUNE.