Hey folks, so if you’ve been around the cryptospace a while, you’ve surely heard of ThorChain, one of the heavy-hitting bridging solutions in the cryptospace. Today I’m going to be doing a bit of analysis on ThorChain and why there’s so many people placing their bets on $RUNE into the next bull market. First though, a bit of history…
What is ThorChain?
ThorChain is essentially a layer-1 decentralized bridging solution that allows the transfer of native Assets across different blockchains. Normally when assets get bridged, say from Bitcoin to Ethereum, the Bitcoin is wrapped ($WBTC) when it get to the other side. With ThorChain, no wrapping is needed and instead through their “Chaosnet,” tokens enter and exit different liquidity wallets (i.e. vaults) where assets are paired in each vault with $RUNE. I’m not even going to try to fake-explain the detailed mechanics about how ThorChain works, but a great explanation can be found here:
Then and Now
In full transparency when I first heard of ThorChain more than a year ago, I thought it was meme coin, when it’s certainly not. (Although I still think it’s a bit much to have all these references to Bifrost, Runes, etc.) Additionally for a while I had also mistaken it for ThorFi a NaaS project, which if you’ve read my previous article about nodes, you’ll have a guess of why I was even more adverse to checking it out.
Ultimately the main reason why I hadn’t given that much thought to ThorChain was because its history of exploits. Bridges are notorious for being crypto’s pain points, but in 2021, and ThorChain was probably the most infamous as it suffered from 3 exploits in just one month. Despite these hurdles, ThorChain was still alive and kickin’ and managed to remain so throughout the bear market:
If you close in on the above graphic to more recent activity over the last month, ThorChain TVL and $RUNE have both been going exploding upwards, with no real signs of slowing down:
At the time of writing, ThorChain’s TVL has broken through $900 million mark, a level that hasn’t been reached since May 2022 — right before the Terra Luna Collapse that sent the entire cryptospace tumbling.
So this begs the question — why the hell is ThorChain been able to see such a resurgence and why have we seen its native token $RUNE explode in price?
Decentralization
Decentralization is at the core of ThorChain’s ethos, as we can see all over their architecture. First there are no price oracles ThorChain, which most decentralized exchanges are reliant upon. Instead, ThorChain relies upon arbitrage bots that can scour for price differentials, theoretically restoring price imbalances in a single trade.
Additionally the ThorChain runs on validator ThorNodes that anyone can spin up, albeit for a hefty price. The current going rate is around 1 million $RUNE, with an average bond price of around 970 $RUNE, or at the time of writing a little more than $6 million dollars. There’s certainly incentives for putting up so much money, but there’s also bigger incentives to be a good actor as slashing can occur if you don’t.
Currently with a little over 102 different nodes, ThorChain’s transactions are decentralized because they aren’t reliant of once centralized party in order for them to go through.
Privacy
Speaking of nodes, because there’s no delegation allowed in the ThorChain ecosystem, nodes are simply identified via IP address and their public key(s).
Are IP addresses failsafes for privacy? No, but they’re a lot more private than having to do a full KYC. With the blacklisting of Tornado Cash, ThorChain’s decentralization and privacy, are probably one of the main drivers for why we’re seeing more and more hackers trying to use ThorChain to wash out their assets instead.
Yields
As a yield hunter myself, probably one of the hardest things to ignore about ThorChain are its Earn rates, which act as single-sided liquidity pools:
https://app.thorswap.finance/earn
All of these rates are mind blowingly high, but perhaps the most crazy one are on their stablecoins — USDT, USDC, BUSD — all earning more than 20% APR, that, and $ETH which is currently accruing more than 15% APR. Furthermore, all of these rates are #Realyield that are generated by swap fees and block rewards.
An important item to note: there are relatively small slippage fees for entering/exiting your positions, so this necessarily wouldn’t make sense to ape into for only a short period of time.
$RUNE and Liquidity Pools
As I mentioned before, entering into an Earn Vault is single-sided, but you could be earning even more (much, much, more) by entering into one of their liquidity pools:
In order to take part of these sky-high returns, you must pool the native asset to its equivalent in $RUNE, meaning that you have pretty heavy price exposure to the $RUNE token itself. Therefore, you might be exposed to a significant amount of impermanent loss, but this type of utility is also probably another reason why we’ve seen such up-only price action over the past month:
https://coinmarketcap.com/currencies/thorchain/
According to their docs, the $RUNE token has also now been fully vested, meaning that there’s no more tokens to be unlocked and that VCs won’t be diluting you out of price action later. There is currently roughly 140 million in tokens out of circulating supply, but it appears that this is part of the “44% [that] has been placed in the Protocol to pay out to Nodes and LPs for the next 10+ years.”
My take
I am certainly bullish for ThorChain and $RUNE for the short-term, but I’m still a little uncertain for the long-term, and by long-term I mean when cryptocurrencies get full adoption. There’s a couple of reservations that I have which make me uncertain:
I’m still not sold that TradFi cares about decentralization OR privacy: If you get all your news from Crypto Twitter you may disagree with me on this one, but if you’ve ever talked to a normie friend about decentralization or privacy concerns you’ll probably get what I’m talking about. Therefore I’m uncertain why most normie people would go out of their way to go through ThorChain, and instead I suspect that a lot of the recent price pumps and utilization of ThorChain are probably mostly from Crypto-natives, not newbies coming into the cryptospace.
Privacy vs. Regulation: If you followed the news about the OFAC sanctions on Tornado Cash back in August, Tornado Cash’s TVL plummeted by nearly 70%:
Hopefully ThorChain won’t share the same fate, but as more hackers are using ThorChain to wash out stolen/exploited funds, I wouldn’t put it past the government to try to enact sanctions on ThorChain as well.
Conclusion
Regardless of the clouds in the horizon, ThorChain is truly showing how well it’s needed, with parabolic trading volumes and crazy money-printing fee generated revenues, and furthermore there really doesn’t seem like there’s any signs of slowing down. And as long as people flood over to continue to use ThorChain, I imagine that will see even more up-only action in the future.
Ands always, thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. If you want to get access to all my draft links or get an idea about what’s next on my docket before I publish, find me on Friend.tech (and now New Bitcoin City), where if you’re a keyholder, I share all that information in my chatroom. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
