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Crypto Banter9 months
OVERVIEW The protocol allows its users to seamlessly swap one native asset such as Bitcoin for another native asset such as Ethereum. Holders of these native assets can now earn a yield by providing liquidity to Thorchain’s pools.

Thorchain Report – Research Report

The protocol allows its users to seamlessly swap one native asset such as Bitcoin for another native asset such as Ethereum. Holders of these native assets can now earn a yield by providing liquidity to Thorchain’s pools.

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Thorchain Report – Research Report




With the meteoric rise of DeFi ($80BN TVL), decentralized exchanges (DEXs) are among the hottest sectors.

Decentralized exchanges allow users to continue holding tokens in their own wallets while trading them instead of depositing them into a centralized exchange (CEX). There are several advantages to this, such as:

1. Anonymity/No KYC.

2. Self-custody and no risk of an exchange hack.

The real DEX explosion started when automated market makers (AMMs) type DEXs such as Uniswap, SushiSwap and Bancor were introduced. Unlike ordinary DEXs that require a counterparty for every trade, AMMs rely on liquidity pools that are provided by users. This ensures that there is a ‘counterparty’ for every trade immediately.

Since then, DEXs have exploded in usage and volume (see table below) and Uniswap, the world’s largest DEX, is now in the top 10 coins by marketcap.

Image 1: DEX total value locked (TVL) metrics on 16 April 2021 (source:

The problem

The biggest limitation of the aforementioned DEXs is that they are limited to trading tokens on a single chain. This means that users on Uniswap can only buy tokens on the Ethereum chain and, similarly, PancakeSwap users can only trade tokens on the Binance Smart Chain (BSC Chain).

This is a major barrier, as users need to use a centralized exchange to move across chains. For example, someone is holding some Bitcoin with which he wants to buy an ERC20 token. He will need a centralized exchange to do this, because he cannot directly interact with his Bitcoin on an Ethereum DEX.

Another big problem is that because of this, Bitcoin can only be involved synthetically by ‘wrapping’ the Bitcoin. This causes people who want to continue holding their native Bitcoin to miss out on acquiring a yield.

The solution


On the THORChain Chaos Net, crypto users can do cross-chain swaps of different tokens like Bitcoin, Ethereum, Litecoin and more. This allows for a truly integrated crypto ecosystem where traders and DeFi users are no longer limited to one chain. To add to this, over US$1 trillion worth of Bitcoin now has a place to go to acquire a yield.

THORChain makes this possible by having multiple vaults consisting of vault addresses for each supported chain. Each chain has one primary vault and multiple smaller vaults for faster transactions – comparable to a CEX’s hot and cold wallets. A group of nodes is responsible for these vaults and reads the transactions related to the vault addresses. When a user performs a swap, it sends its tokens to the vault address. This is observed by the group of nodes and once confirmed, the group of nodes comes to a consensus to send back the other token involved in the swap.

Image 2: Diagram of the THORChain network (credit to YouTuber GrassRoots Crypto)

Project fundamentals


Impermanent loss (IL) protection

Anyone who has provided liquidity on a DEX has probably had to deal with the unpleasant experience of impermanent loss (IL).

IL is caused by one of the two assets in a pool losing or gaining significantly more than the other, which by rebalancing the liquidity causes the liquidity provider to be worse off than he would have been had he simply been holding both tokens. On THORChain, liquidity providers have the guarantee that if they provide liquidity for at least 100 days, any loss caused by rebalancing will be covered by the treasury.

No KYC restrictions

Centralized exchanges are subject to stringent know your customer (KYC) rules by regulators. Since cross-chain swaps have always taken place on centralized exchanges, these were subject to KYC. This also meant that people living in certain jurisdictions were limited from owning certain coins entirely.

THORChain is decentralized and requires no KYC; users therefore do not face these restrictions and are allowed to trade freely.

One-of-a-kind security and incentives mechanism

As mentioned, THORChain nodes carry a lot of responsibility because they guard the vaults. To ensure the safety of the assets in the vaults, incentives on the THORChain network are set in such a way that it would never be profitable for nodes to misbehave. Nodes have to bond significant amounts of RUNE tokens to become a node. The summed-up bonds of the nodes must be equal to twice the amount of non-RUNE assets pooled on the network. This, combined with the fact that all nodes must reach consensus before (harmful) actions can be taken, makes it economically unprofitable and therefore basically impossible to exploit the network.

Coming soon: XDEFI

A multi-chain wallet that allows users to send, receive and interact with a variety of native chains, all in one interface. Think MetaMask but for all chains in one.

THORChain ecosystem expansions

Now that THORChain’s Chaosnet has been released, the doors have opened up for other projects to start building on top of THORChain and expand the ecosystem. One that has captured our attention is Thorstarter, an initial DEX offering (IDO) launchpad platform built on top of THORChain.

The Team

As with many projects in the space, the THORChain team is pseudo-anonymous and has been building since 2019. The team is executing a plan that will decentralize the project completely by July 2022.

Although we are not big fans of anonymous teams, this team has built a reliable reputation by constantly delivering on the product, as well transparently communicating along the way. By doing this, the team has built a loyal and highly engaged community, which will eventually be able to take control of the protocol, making it truly decentralized.

Several big names are openly supporting and contributing to THORChain such as Chad Barraford (technical lead at THORChain) and Erik Voorhees (CEO of ShapeShift). As Erik puts it in the THORChain clubhouse meeting: “THORChain is one of the coolest projects in the crypto world that I have seen since I have learned about Bitcoin.” In a recent tweet, he also mentions the release of THORChain Chaosnet being bigger than the Coinbase IPO.

The RUNE token

There are many use cases for the RUNE token.

RUNE serves as the settlement asset, so that a Bitcoin-to-Ethereum swap happens by first selling Bitcoin for RUNE and then buying Ethereum with RUNE. This happens behind the scenes and users do not notice this step. This way of conducting swaps allows for greater liquidity, as each asset only has to be pooled against RUNE.

Furthermore, the token is used to provide incentives on the network. Here is how:

Large players hosting nodes earn a big share of the platform fees. Smaller players can choose to provide liquidity to any of the native assets to RUNE pools. Both methods accrue profit by getting a share of the swap fees distributed in both pooled assets, as well as block rewards distributed in RUNE.

Correctly incentivizing the RUNE token also ensures security. It does this by making misbehavior on the network costlier than the rewards that can be obtained, as explained above.

By simply holding RUNE, you will also profit from the success of the platform. RUNE has a unique system in that the price of RUNE is directly correlated with the total value locked (TVL) in the THORChain network. By lining up the rewards in such a way that the network will only be in balance when the marketcap is at least equal to three times the TVL, this system ensures that the RUNE token always captures the success of the network.

Currently, almost 50% of the total supply is circulated. When the main net (the full release without restrictions and including all planned assets) releases later in the year, it will trigger some token lock-ups to start releasing tokens. This can be seen by the squiggly line on the chart. Apart from that, RUNE tokens will release slowly and gradually over time.

Image 4: RUNE token release schedule for the first 10 years  (source: spreadsheets/d/1e5A7TaV6CZtdVqlOSuXSSY7UYiRW9yzd1ST6QTZNqLw/edit#gid=918223980)

Why now?

After years of development THORChain successfully launched its main net on 13 April. Cross-chain assets can and have been exchanged seamlessly and safely using the protocol.

The TVL on THORChain including their BEPSwap platform is north of $700 million. To ensure a safe release of the Multi Chain Chaosnet, there is a limit placed on the number of funds allowed in the pools. With only a few days since release, the TVL on the Chaosnet is $38 million. These numbers will be much higher as the limits are raised.

The launch has been well-received by the market, as in the days leading up to and after the launch the price has surged from a little over $4 to over $15.

Should you be buying?


Thorchain solves one of the biggest challenges in the crypto space, namely that of seamless, cross-chain transactions.

This will allow for a better user experience and increased capital efficiency in the industry. It will also unleash more than $1 trillion in Bitcoin into the DeFi ecosystem.

  • The project is first to market and is quickly gaining network effects.
  • The project is technically sound and has passed several major audits.
  • The team, though anonymous, has delivered and been reliable in communication.
  • The project has a large, engaged community and many large contributors and supporters.

Furthermore, as mentioned under security, the bonded RUNE for nodes must exceed the value of non-native assets. This means that they have to buy up RUNE as the TVL increases, making the RUNE price go up further as well. In equilibrium, the RUNE marketcap should be at least equal to three times the TVL of non-RUNE assets.

Think about this, with only Bitcoin’s current marketcap of US$1 trillion, if 1% would go to THORChain for native yield this would result in 3*US$10 billion, leading to a marketcap of US$30 billion. Add to this a bunch more native assets, as well as rising prices of these assets, and you will understand that the potential for $RUNE is endless.


Like any DeFi project, THORChain runs the risk of an exploit that can result in a loss of funds for its users. THORChain has however been in development for years and security has been a priority. It has also passed several audits.

Furthermore, centralised exchanges have been hacked numerous times which has led to users losing funds each time.

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