Recently, you might have encountered an increased hype of ThorChain and it is worth noticing that Thay have already Hit Record Transaction Volume at $355 million, surpassing the previous record set in July amid heightened DeFi trading activity during recent hacking activities as noted by @WuBlockchain...

But why?

Hackers are attracted to THORChain specifically ThroSwap due to its ability to facilitate easy cross-chain transfers, allowing them to move stolen assets across different Blockchains.

But what fascinated me was a huge pump of Rune, The native token of ThorChain all of a sudden....

While researching, I found out that this pump was most closely related to the new lending mechanism introduced by ThorChain!

Just imagine this:

-> 0% interest on the Loans youu take

-> No liquidations

-> No Expiry

What? You might be thinking its impossible (at least in web3) but to your surprise, ThorChain has introduced this! Here's my research:

ThorChain - A blesssing or just a hype

THORChain is a decentralised cross-chain liquidity protocol that utilises the Tendermint consensus engine, Cosmos-SDK state machine, and GG20 Threshold Signature Scheme (TSS). It operates as an independent Layer 1 cross-chain decentralised exchange (DEX) built on the Cosmos SDK.

ThorChain Basically addresses the following utilities in Web3:

The Lending Mechanism

Unlike others Thor doesn't use oracles or 3rd party price feeds or dependencies

Accordingly:

"Derived assets, such as thor.btc andthor.tor, are  coins that are backed by the liquidity of RUNE, and the liquidity of that is based on the RUNE-ASSET pair. Derived assets are swapped from or swap to L1 assets, via RUNE, using derived asset pools that are based on the equivalent L1 pools."

So you are basically using the RUNE liquidity pools to swap to Bitcoin and other cryptocurrencies.... But....... 👇

As read earlier, The lending mechanism is unique... Considering the whole situation, Could it be a dumb or a smart idea 🧠

But a small but an interesting and worth noticing point was discussed by @DU09BTC

You see, Every time you deposit collateral, the lending mechanism will buy RUNE and afterwards, sells half to pay you in USD.

Price pumps and they burn RUNE 

Note that they ar actuall liquidating all of your collateral!

e.g. Consider this:

You swapped 2 ETH via a pool. Now what will happen is that your ETH will be converted to RUNE i.e. 2000 RUNE. Of them, 1k Rune will be burnt and remaining 1K rune will be swapped back to the token you were swapping to. Notice how $2k are returned with $1k only. 

The Liquidity to drive ecosystem

Unlike traditional liquidity utility i.e. limit-order books, THORChain utilises continuous liquidity pools (CLP). Deep liquidity attracts more volume as it gives traders lower slippage on their trades, plus it needs more volume to arbitrage the pools to the correct prices.

Accordingly,Thor Provides “always-on” liquidity to all assets in its system and Responds to fluctuating demands of liquidity.

The synthetic Asset

A wrapped asset is collateralized by the asset its wrapping, while a synthetic is collateralized by one more assets. THORChain's synthetics are collateralized by the pools, so 50% the asset, and 50% $RUNE. Notice how they are pumping their own token. But on the other hand, the synth is half backed by $RUNE, it can always ensure economic security of the synthetics, and that the network security is always greater than the value of the synthetics, even if they go 1000x up in value as noted by @CBarraFord

Savers - Why is it good for $RUNE specifically?

Users can gain yield with single sided asset exposure using Synthetics. Savers Vault is the FIRST EVER decentralized product to offer yield on NATIVE Bitcoin $BTC and it's been live for a month. For this:

"The User mints a Synthetic asset - this is an asset that retains 1:1 purchase rights on the underlying L1 asset. Then the User locks this synthetic asset in a Savings vault, and they are issued Saver Units - units that track their ownership of the total vault balance. The protocol monitors the yield the underlying Synth liquidity is earning, and pays that yield directly into the vault. The user can then reclaim their principle and earnings at any point later. "

But it seems like they themselves are not sure about this one as they mention:

There may be an economic bug in Synths, leading to breakdown in the accounting of the claims. The risk of this goes down everyday, and to date no bug in Synths has been found since they were turned on in June 2022. There may be a technical bug leading to a loss of L1 assets in the vaults. This risk is non-zero and all custodians (decentralised or centralised) contain this risk.

Considering all above, it seems like whatsoever, ThorChain is built to be bullish on $RUNE! The fact that user assets are liquidated but returned at the same time is a unique idea and this explains why ThorChain, afterall, is a homeplace for web 3 blackhats!

If this continues, $RUNE can lead the next bull run pretty easily...

I think $RUNE competes with other major DeFi in web 3 as it is open about its limitations and a plus point is that it has no stable coin ensuring greater yield.

𝓣𝓱𝓪𝓽'𝓼 𝓪 𝓦𝓻𝓪𝓹!

Hope you enjoyed reading!