THORCHain is a permissionless cross-chain liquidity platform that supports interoperable blockchain communication.
It is a non-custodial liquidity marketplace for blockchains that allows users to swap assets freely through multiple networks (cross-chain transfers).
The native cryptocurrency of the THORChain network is called RUNE.
The official website sums up what is THORChain the best:
“THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.”
This ThorChain (RUNE) guide will allow us to dive in a little deeper and answer all of your RUNE related questions.
Let's kick this guide off with a couple of high-level introductions.
First of all, let’s introduce THORChain itself.
“THORCHain is a liquidity and interoperability system with an emphasis on facilitating secure cross-chain cryptocurrency transactions.”
What makes THORChain unique is that it does not peg or wrap assets as we see on Ethereum or Binance Smart Chain.
Instead, THORChain determines how to move assets in response to user actions.
This is achieved by accepting deposits into vaults, adding or removing liquidity as required and then processing the outbound transactions.
You can think of THORChain as a leaderless vault manager, whose job is to ensure every stage of the process is byzantine-fault-tolerant.
THORChain’s key objective is to facilitate cross-chain liquidity, while remaining resistant to centralisation by only securing native assets in its vaults.
Secondly, we come to RUNE - The native token of the THORCHain network.
The token has a maximum supply of 500,000,000 and was initially funded in July 2019 via an initial DEX offering (IDO) on the Binance DEX.
According to the official THORCHain roadmap, Chaosnet is currently live on THORSwap.
This allows users to swap BTC, ETH, ERC20, BNB, LTC, and more, natively.
Staking however, is currently capped as the functionality of the protocol is verified.
Once the THORChain mainnet goes live in Q2/3 2021, these staking caps will be removed.
Moving forward, node operators on THORChain must commit a minimum of 1 million RUNE to participate in the network’s rotating consensus process.
The RUNE token powers the entire THORChain ecosystem and provides the economic incentive required to secure the network.
The four key roles of the RUNE token are:
Keep reading our ThorChain (RUNE) guide for an in-depth look at the entire project, starting with a look at how it works below.
THORChain is a Tendermint-based blockchain.
As a result, the network primarily uses Tendermint BFT (Byzantine Fault Tolerance) as its consensus mechanism.
However, THORChain also employs elements of Proof of Stake (PoS) for resistance against Sybil attacks.
In order to try and explain how it works without getting too technical, let’s break down the THORChain network into subsections.
The first thing that needs to be explained around how THORChain works, is the RUNE liquidity pools.
Each liquidity pool is made up of both RUNE and the other native asset that they’re composed of.
For example, the Bitcoin liquidity pool will be composed of RUNE and BTC, while the Ethereum liquidity pool will be comprised of RUNE and ETH.
What the RUNE token does within liquidity pools, is act as an intermediary token that allows anyone to swap between any 2 pooled assets.
You’re able to use the THORChain network of liquidity pools to swap native coins from different blockchains without ever requiring permission or to wrap.
So when it comes to liquidity pools, the RUNE token acts as an intermediary asset for use across each different pool.
All cross-blockchain trades go through these liquidity pools and are facilitated by the RUNE token.
When it comes to pricing within these pools, the free market decides.
The assumption however, is that the THORChain network is now mature enough to have discrepancies instantly arbitraged out.
Furthermore, liquidity pools require participation from both liquidity providers and users:
Liquidity Providers: These are participants that add liquidity to particular pools that is then bound with RUNE in a separate vault.
Liquidity providers earn rewards via fees generated from pools and are paid out when users withdraw.
Users: These are regular people who are using liquidity pools to transfer assets across different blockchains without permission.
For this service, users pay a fee to incentivise liquidity providers and make up for any external chain fees.
The next aspect of THORChain that needs to be explained is the nodes that provide security to the network.
Not only do they secure the network, but nodes also act as bridges to other blockchains, ensuring that each transaction is correctly broadcast to the correct external chain.
Nodes have 3 main functions:
When users make a cross-chain transaction using a THORChain liquidity pool, nodes act on their behalf to perform the actual on-chain transactions.
Moreover, as part of this PoS component, a system of validators is able to stake RUNE tokens to run network nodes and validate transactions on the THORChain network.
The RUNE token acts as both a reward incentive and penalty mechanism, with nodes earning two-thirds of the system income from their activities.
This helps to ensure that nodes are all in sync with the network, as well as the other chains hosting assets within liquidity pools.
Nodes are anonymous, maintaining plausible deniability on all transactions.
They’re created every three days and compete to enter with bonded capital and the oldest nodes are churned out and replaced when necessary, allowing the network to stay fresh.
For more information on the technical side of how THORChain (RUNE) works, the official docs section is an excellent resource
Here’s a quick snippet:
THORChain is a leaderless vault manager:
- 1-way State Pegs allow syncing state from external chains
- A State Machine to coordinate asset exchange logic and delegate redemptions
- Bifröst Chain Client to convert redemptions into chain-specific transactions
- A TSS protocol to enable distributed threshold key-signing
The THORChain docs will satisfy your tech urges, while this more digestible ThorChain (RUNE) guide will keep things at a higher level.
Let’s keep going deeper.
THORChain is unique, innovative and moves the entire industry a step forward when it comes to the development of an interoperable DeFi system.
The availability of cross-chain swaps and liquidity pooling using native tokens provides great benefits both to system users and the DeFi investment vehicles as a whole.
THORChain has definitely paved the road for future DeFi growth and development.
In this section of our THORChain Coin Guide, we investigate what decentralised finance on THORChain is and how its platform works.
Thorchain is a decentralised liquidity protocol that allows users to swap native assets between different blockchains.
For example, native BTC to native ETH without having to wrap tokens as you would on Ethereum for example.
The THORChain interface works a decentralised exchange, operating with the same basic elements as all other DEX's with the exception that THORChain is pushing the boundaries of existing DeFi operations.
How?
By providing investment vehicles that allow liquidity transfers and pooling to occur cross-chain in native tokens.
A modified version of Bancor's continuous lending pools is utilised by THORChain to conduct swaps.
In this type of transaction, assets deposited into liquidity pools are all coupled with THORChain's native token, RUNE.
In each and every trade occurring on THORChain, all other assets are swapped against the RUNE token.
Let's assume a user wants to trade coin X into coin Y.
The THORChain protocol breaks the transaction into two separate transactions:
By using this mechanism to conduct swaps, the ability is present for THORChain to perform cross-chain swaps.
When THORChain launched, the blockchains supported by its protocol were Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Binance Smart Chain.
The number of supported blockchains by THORChain is expected to rapidly grow.
The Automated Market Maker (AMM) model is utilised on THORChain to provide asset prices.
The prices generated are reflective of external exchanges.
Traders continuously intervene on the occurrence of a price discrepancy through arbitrage to cause a convergence in pricing, thereby restoring the price to its proper level.
Users providing liquidity in the THORChain system supply RUNE plus one other coin/token asset to a pool.
For this provision, the liquidity provider receives a reward in the form of RUNE tokens plus a portion of the fees collected from those traders utilizing the said liquidity pool.
Validating nodes are actually incentivised to post double the monetary value of the assets held in vaults.
This works because fees from trades swing between liquidity providers and nodes.
If nodes are “under bonded” a higher percentage of fees goes to nodes, which encourages more bonding.
Overbonding has the opposite effect.
Thorchain is in its "optimal state" when 67% of all RUNE in the protocol is bonded and 33% is staked.
This over-collateralised bonding system means corrupt nodes have more to lose than gain when they act dishonestly.
As a result of these DEX incentives, Thorchain typically has a low slippage because of fees and non-custodial yield.
This ensures that the difference between quoted and actual prices is as small as possible between trades on the Thorchain.
To use THORChain for DeFi (or any other purpose), you can follow these steps:
You must have a wallet that is compatible with THORChain such as Trustwallet.
But for convenience and safety reasons, it is highly recommended to use Thorswap's native wallet, Keystore. (See step 2 to gain access to Thorswap).
An interface such as Thorswap must be accessed.
Click 'Launch App' in the upper right corner of your screen and connect your wallet.
Either connect your existing wallet to Thorswap (upper right corner of the screen), or download Keystore.
You may conduct any desired DeFi transactions (swaps, withdrawing assets, depositing liquidity, withdrawing liquidity, etc.) using THORChain's Chaosnet.
When it comes to using THORChain (RUNE) for DeFi, a few final items about Chaosnet merit mention:
Chaosnet is in Beta and the site itself warns users: "Take your own Risk. Always back up your wallet and do not play with large funds. Bookmark app.thorswap.finance to be safe."
By design, Chaosnet has a limit on the swaps/liquidity that can be transferred cumulatively at any time as a protective measure while in Beta.
If the funds cap over limit exceeds 100% you will be unable to trade on Chaosnet and will have to wait until this number falls below 100% to trade.
The funds cap over limit may be found near the top of the Chaosnet site page.
The THORChain team is presently working to remove the aforementioned protective measures which will, in effect, transform Chaosnet into the THORChain Mainnet.
In this subsection of our THORChain guide, a brief comparison of THORChain (RUNE) and Polkadot (DOT) will be presented.
This presentation is not meant to be exhaustive and as always, before making any investment decision, do your own research.
The first (and truly only) comparison that can be made between THORChain (RUNE) and Polkadot (DOT), is that both projects have the same objective.
That is that both projects are aiming to stretch the possibilities of blockchain technology by making absolute interoperability exist between all the various blockchains.
However, THORChain (RUNE) and Polkadot (DOT) are approaching this solution in different manners.
Let’s take a look at how each is going about it below.
In essence, THORChain works like a cross-chain decentralised exchange, with RUNE serving as its native token.
THORChain allows its users to swap tokens from different blockchains in their native form (without wrapping or pegging), all while maintaining an environment free from third party risk and being non-custodial in nature.
Using THORChain, a user who wants to swap let's say Ethereum for BNB (BSC) would not be forced to resort to a centralized exchange.
Nor would the user face the hassle of dealing with synthetic (wrapped) versions of the assets.
The swap may be done on THORChain, all while sending and receiving native tokens.
How does THORChain achieve this high degree of interoperability in its ecosystem?
The answer to this question lies in its use of the native RUNE token through its vaults.
Using the ETH to BNB (BSC) swap example above, the THORChain protocol would break the transaction into two separate transactions automatically:
By using this mechanism to conduct swaps the ability is present for THORChain to perform cross-chain swaps.
The Polkadot protocol achieves interoperability on the next level of blockchain evolution.
Protocols such as Polkadot seek to provide the various different blockchains with a system by which they can communicate with one another.
Polkadot is lead by Gavin Wood, who with Vitalik Buterin, were the co-creators and founders of Ethereum.
Wood has set out on a course to expand on Ethereum's capabilities, but how does Polkadot achieve interoperability?
The design structure of Polkadot can support hundreds of application-specific blockchains in an interconnected fashion.
These application-specific applications in Polkadot terms, are called 'parachains'.
Each of these individual parachains must be built upon the Substrate framework to operate in the ecosystem.
All of the independent parachains plug into a common base unit responsible for consensus and security, known as the Relaychain.
Inter-chain communication and cross-chain transactions are made possible by the parachains’ interaction with the relaychain, producing the desired degree of interoperability in this system.
As stated at the onset of this article THORChain and Polkadot share a common objective - That is blockchain interoperability.
Their respective approach to this solution, however, is vastly different.
This section of our guide to THORChain attempted to demonstrate these differences in an overly simplistic fashion, as to fully discuss the mechanics behind each project, would require a book.
For each project!
Suffice it to say that an interoperable blockchain system is being presented in both these projects.
And each project provides yet another piece of the puzzle in making a future featuring fully interoperable blockchains a reality.
The XDEFI Wallet is our RUNE wallet of choice.
XDEFI Wallet is actually a chain agnostic wallet that works via a cross-chain wallet extension.
This means that it is not RUNE specific.
You’re able to store, send and receive a number of cryptocurrencies, including RUNE, from a single place.
All you need to do is move your favourite coins into the wallet and then connect to your favourite DeFi dApps.
RUNE and otherwise.
THORChain is supported by XDEFI Wallet, currently on version 3.0.
XDEFI Wallet currently supports a number of blockchains, including the following:
Starting with version 3.0, XDEFI Wallet has also now added support for Polygon (MATIC).
Polygon is a Layer 2 sidechain that enables faster and cheaper transactions on Layer 1 (Ethereum).
In order to use THORChain with Polygon, it's necessary to migrate tokens by way of a bridge.
Zapper is the recommended bridge to migrate tokens from Polygon to THORChain.
When interacting with Polygon from the XDEFI Wallet extension, go to the Network Menu and toggle the item Injection Provider.
The development team at XDEFI Wallet is also working to add support for the following blockchains:
XDEFI Wallet 3.0 also includes support for HD Wallet.
This update improves compatibility when importing your secret phrase from other wallet providers such as MetaMask, MyEtherWallet, and others.
With XDEFI Wallet 3.0, Ledger wallets can be connected to XDEFI for added security.
At this time only ETH and Ethereum-based cryptos are supported when using this integration.
However, XDEFI Wallet 3.0 is being updated to support Bitcoin, Litecoin, and THORCHain's native RUNE token.
An alternative RUNE wallet is the ASGARDEX Electron wallet which as of the 14th of July 2021, is now supported.
Released for Windows, MacOS, and Linux.
ASGARDEX-ELECTRON is a desktop wallet application available for Windows, Mac, and Linux operating systems.
According to XDEFI, ASGARDEX is available with XDEFI Wallet when you download XDEFI Wallet.
According to Runebase, the THORChain community ecosystem is building a mobile THORChain wallet app that will include native cross-chain swaps, the ability to manage staking positions, community features, education, and more features/options.
THORWallet will be the first purpose-built mobile wallet from this ecosystem of dApps.
It will offer deep integration with the THORChain network, and most of the features found on desktop exchange interfaces such as THORSwap, will be available on THORWallet.
Two versions of the mobile wallet are planned, one of which features a simplified interface to appeal to a broader market of cryptocurrency holders.
THORWallet will feature the THORChain branding, but the simplified version for retail will be unbranded.
The simplified THORWallet will offer an easy-to-use interface that will appeal to people not familiar with the complexities of DeFi.
Just as THORChain has its native RUNE token, THORWallet will have its native $TGT utility token.
$TGT can be used to unlock premium benefits such as reduced fees, and additional $TGT tokens can be earned by participating in gamified community missions.
In today's cryptocurrency world there exists a growing number of decentralised exchanges.
One of the more prevalent of these exchanges is THORChain, with its native token, RUNE.
In this subsection of our THORChain guide, let's look at the various pros and cons associated with THORChain (RUNE).
THORChain provides the user with a decentralised platform that enables easy swaps of tokens in their native form (no wrapping or pegging required).
Marketplace liquidity is fostered by the availability of cross-chain bridges, providing easy access to the THORChain blockchain.
THORChain offers continuous liquidity pools which are unique in nature within the cryptocurrency arena.
“THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.” - From the THORChain whitepaper.
To become a validator, RUNE must be bonded. Validators may be punished in the THORChain ecosystem for bad actions through forfeiture of all or a portion of the RUNE bonded.
The swap of assets by a user is unrestricted by the THORChain system and is non-custodial in nature
“Liquidity is provided by stakers who earn fees on swaps, turning their unproductive assets into productive assets in a non-custodial manner.”
“Market prices are maintained through the ratio of assets in pools which can be arbitraged by traders to restore correct market prices.” - From the official website.
There really is not a long history trail behind the THORChain protocol as the conception of the project did not occur until 2018.
While this could easily also be perceived as a pro, THORChain has no CEO, no founders, or no directors so basically it is without any management team at all.
This was a purposeful decision as the founding team believed that anonymous decentralisation was key to the success of the project.
This however, has caused some concerns to be raised by the DeFi community and it appears DeFi users are somewhat unhappy with the absence of information concerning the key players behind the formation and operation of THORChain.
The THORChain ecosystem is quite extensive relative to that which it hopes to achieve.
As shown above, there really is not much working against THORChain at the present time.
However, one must remember that this is still a developing technology.
But if the THORChain technology is soundly implemented, this protocol stands in a superior position to greatly enhance the decentralised finance sector of cryptocurrency as it moves onward into the future.
In this subsection of our RUNE guide, we look into what caused the most recent hack on THORChain.
As well as what steps the network is taking in the aftermath to both rectify the situation and ensure that it can’t happen again.
On July 15, 2021, a hacker compromised THORChain's cross-chain decentralized exchange causing a loss of approximately 4000 Ethereum (currently valued at approximately $7 million).
Specifically, the hacker exploited a vulnerability that was contained in THORChain's Bifrost protocol that transferred Ethereum directly to the hacker's accounts.
The Bifrost protocol is a multi-chain mechanism that facilitates cross-chain connections through the use of bridges between various blockchains.
Bifrost recently updated the Ethereum bridge with THORChain so as to improve on its existing composability, (this update was specifically performed to allow the router to be “wrapped” by contracts).
Basically, the hacker was able to play a trick on the network.
The hacker made it appear that Ethereum was being deposited into THORChain through the Ethereum Bifrost component when in fact zero (0) Ethereum was actually transferred.
Specifically, the THORChain ETH Bifrost router was tricked by utilizing a custom wrapper to read a deposit amount of 200 ETH when it was in fact zero ETH.
The attack was repeated by the hacker for between one to two hours before the entire THORChain network was shuttered by the node operators.
It is interesting to note that the network shut-down was commenced when a THORChain developer became aware of the situation and requested the node operators to enter the 'make halt' command to prevent further losses.
The threshold to stop network operations was met when one-third of the node operators issued the command.
When THORChain originally announced the attack, it was first reported that the hacker made away with approximately 13,000 Ethereum (or roughly $25 million).
On THORChain's Official Twitter account the first reported sum was revised by the following announcement:
“At this stage, the estimate is around ~4000 ETH worth of assets (ETH/ERC20) was taken, not 13k ETH. More detailed assessment and recovery steps will be announced soon".
Although it appears that THORChain has sufficient funds on hand to cover its users’ stolen assets, administrator's on the THORChain Official Community Telegram channel have expressed a preference for the hacker to return the exploited funds in exchange for an appropriate 'bug bounty'.
The exact Telegram statement reads as follows:
“While the treasury has the funds to cover the stolen amount, we request the attacker get in contact with the team to discuss the return of funds and a bounty commensurate with the discovery.”
As noted above, the entire THORChain system was shut down as a precautionary measure.
The Telegram announcement continued in that the users' funds:
“...will be available when the issue has been patched & the network resumes".
Later on, THORChain outlined the recovery plan that is already in motion.
Before the attack, the hackers paid 'huge slip fees' of about $1.4 million captured by nodes and another $1.4 million caught by the ERC-20 liquidity providers as the team explained.
THORChain said that only users affected are ETH LPs and they will be made whole.
THORChain's recovery plan also calls for increased audits of its systems.
Parenthetically, this was the second attack on the THORChain system.
THORChain announced that its node operators and liquidity providers should be unaffected after the funds have been recovered and restored, and added that “the network will be stronger and more resilient.”
All in all, THORChain handled the attack situation it faced in a very professional fashion.
THORChain was extremely transparent in explaining the causes of the attack as well as the remedial steps it was taking in an expedient time frame.
In their infancy, both Bitcoin and Ethereum were subject to costly exploitations.
Those attacks did not impede the future successes bestowed upon both these projects.
It is very likely that the same will hold true for THORChain as the systemwide need this project addresses, is very much necessary to secure, foster, and ensure the future of decentralised finance in the blockchain world.
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