What is THORChain?
THORChain is a layer-1 network built on Cosmos SDK and Tendermint. THORChain is a decentralized, cross-chain and disapproval exchange (DEX) that uses Threshold Signature Schemes (TSS) to secure its leaderless asset repository. Tendermint and TSS offer a multilayered Byzantine Fault Tolerance (BFT) consensus mechanism and require a majority consensus at 2/3 for money to be traded in and out of the main TSS warehouse.
THORChain was conceived in 2018 by a development team participating in the Binance Dexathon competition. THORChain facilitates cross-chain liquidity, reducing the need for centralized exchanges and third parties in the DeFi space. It allows cross-chain swaps and generates profits on crypto assets such as Bitcoin and Ethereum.
How does THORChain work?
Unlike other cross-chain protocols, THORChain uses original assets to perform autonomous, transparent asset swaps. There are four main types of users in the THORChain ecosystem:
- Swappers use Liquidity Pools to swap assets.
- Liquidity providers add liquidity to the tanks and earn rewards.
- Every The node operator provides the bonds and is paid to secure the system.
- Traders monitor and rebalance the tanks with the aim of making a profit.
Liquidity providers deposit assets into THORChain’s liquidity pool for profit, which is charged by swap fees and system rewards. Anyone can add liquidity so THORChain is a system that doesn’t need permission. In addition, THORChain does not deposit because only the original depositor can withdraw the assets they have deposited. Liquidity providers can also recommend new liquidity pools, as long as these assets are tokens of a supported chain in the ecosystem.
Node operators, known as THORNodes, are independent and communicate with each other to form a cross-chain swap network. In exchange for network security, they will receive a reward as a fee for each swap made. Before becoming a node operator, the user must provide a rune bond. These bonds are held as collateral to ensure that node operators operate in thorchain’s best interests. The total bond needs to be twice as large as the number of RUNEs combined.
During the asset swap, the swapper will send their asset to THORChain and receive another asset. For example, when swapping BTC to ETH, the swapper sends BTC to THORChain. When BTC enters the network, there will be BTC for RUNE to swap and then RUNE to ETH for swapping. ETH will then be sent to the swapper from a THORChain vault. This process allows THORChain to perform root swaps without wrapping assets.
The market price on THORChain is regulated by Arbitrage traders, thereby determining the value of asset swaps. These traders look for misvalued assets between markets to profit from spreads. This mechanism allows THORChain’s market price to be regulated naturally without oracles.
With this model, THORChain can identify and compare the value of assets by applying tank balance. In fact, THORChain acts as a vault manager who tracks deposits and withdrawals while using the general ratio to price assets. This helps to create decentralized liquidity and eliminate centralized intermediaries.
What makes THORChain unique?
For swappers and traders
- There is the possibility of swapping layer 1 original assets on multiple blockchains.
- There is no requirement to register – anyone can submit a transaction and THORChain will make a swap transaction.
- No need to wrap their assets – THORChain uses its original asset repository to make the swap.
- It is possible to access transparent, reasonable prices without relying on centralized third parties or oracles.
- Calculate liquidity on demand at any time.
For liquidity providers
- Make a profit from idle assets such as BTC, ETH, BNB and LUNA.
- Enjoy Impermanent loss protection (IL) of up to 100% after they have been in the tank for 100 days.
- There is no lockdown time.
- It is not mandatory to register.
- Not dealing with a third party.
For node operators
- Get rewards for participating in network security.
- Encourage anonymity to increase decentralization.
- It is not mandatory to register.
What is RUNE?
RUNE is the original currency of THORChain. It acts as a base pair for users to swap RUNE for any other supported assets. RUNE has a supply of 500 million and four main use cases: payments, security, administration and incentives.
RUNE is the payment asset for all liquidity pools, facilitating the swap between the two tanks. RUNE ratio: ASSETs of 1:1 are required per tank. For example, a tank with $100,000 BTC would need to hold a $100,000 RUNE.
To ensure security, node operators must send twice as many RUNEs as the amount added to a group. RUNE bonds are held as collateral to ensure that node operators operate in the best interests of the network.
RUNE token holders can choose the preferred asset or chain by voting on liquidity. For example, a tank with the most RUNE commitment will be given a higher priority.
To receive incentives
Block rewards and swap fees are paid to liquidity providers and node operators in RUNE on a predetermined schedule. RUNE can also be used to pay gas fees.
Rune’s smallest denomination, called Tor. RUNE is geared towards a predictable defined value. By design, RUNE’s Market Capitalization must be at least three times the total value of non-RUNE assets in the ecosystem’s liquidity tanks.
How to buy RUNE on Binance
Users can buy RUNE on cryptocurrency exchanges like Binance.
- Sign in to your Binance account and click [Trade]. You can use classic or advanced trading modes to buy RUNE.
- Type “RUNE” on the search bar to see the trading pairs available. Let’s take the RUNE/BUSD pair as an example.
- Go to the box [Spot] and enter the number of RUNSE you want to buy. In this example, we will use the Market command. Click [Buy RUNE] to confirm your order and the purchased RUNE will be credited to your Spot Wallet.
As a cross-chain DEX in DeFi, THORChain is paving the way for automatic asset swapping and without the need for intermediaries. The design of RUNE as a payment tool, security assets, administration and receiving incentives enables the use of THORChain’s original swap model in a decentralized environment and across multiple blockchains.