What is Thorchain (Rune)? – Everything to Know About This Decentralized Liquidity Network
Thorchain is a decentralized liquidity network that allows users to swap crypto assets across blockchain networks. Crypto investors often complain about the lack of cross-network liquidity as they can’t trade or use the native token of one blockchain on another. Thorchain has introduced a decentralized solution to the problem because crypto markets are gaining more and more users every day.
Existing Swapping Solution
There are already a number of crypto exchanges like Coinbase and Binance where crypto token holders can swap their crypto assets for a reasonable fee. But most of the exchanges are centralized which the users don’t feel secure trading their assets.
The users can also take advantage of the wrapped tokens technology to trade their crypto assets on another blockchain network. But again, they have to contact a centralized organization to get the wrapped version of their crypto tokens.
What is Thorchain?
Thorchain is a decentralized network that facilitates the trustless and permissionless trading of crypto assets. The users can swap their crypto assets on Thorchain DEX without having to deal with an intermediary. The project is named after the god of thunder and lighting (in Norse mythology).
Thorchain is built on Cosmos SDK (the internet of blockchains). Thorchain has established a network of nodes with the help of the Cosmos software development kit. These nodes are responsible for verifying transactions. They also maintain a record of transactions coming from different blockchains.
Thorchain Brief History
Thorchain’s concept was initially introduced at the Binance hackathon in 2018. The team continued this project even after the hackathon. The goal was to introduce an independent blockchain that could work as a bridge between different blockchain networks.
The team initially introduced Instaswap, a decentralized exchange to show the capability of the network they were planning to launch. The team introduced BEPSwap in July 2019. It enabled users to swap BEP2 assets on the blockchain.
During an Initial DEX Offering, the company raised around $1.5 million to continue its operations. The team finally launched the multi-chain chaos network in April 2021.
How Does Thorchain Work?
Thorchain is a decentralized cross-chain network that allows users to trade crypto assets from different blockchain networks. It has its own vault that is used to store cryptocurrency tokens. The vault is protected with the help of the Threshold Signature System (TSS).
Thorchain network uses a proof-of-stake (PoS) consensus protocol to achieve consensus. A two-thirds majority can validate the transactions coming from different blockchain networks.
The Thorchain network is operated by four different participants.
Liquidity Providers – Thorchain has created different liquidity pools to streamline the swapping process for the users. Liquidity providers lock different tokens in these pools to earn some reward. The reward varies depending on the liquidity available in a certain pool.
Swappers – These users swap their crypto assets through liquidity pools. They pay a small amount as a swapping fee when carrying out a transaction. A portion of the fee is transferred to liquidity providers and also distributed among node operators.
Node Operators – Node operators help with keeping the network secure. These users stake their Rune tokens to run a node. They receive rewards from the network whenever they verify a transaction. The transaction is processed if a two-thirds majority of node operators verify it.
The node operators need to stake 1 million rune tokens to participate in the process. And they may lose their staked amount if they’re involved in malicious activity.
Traders – These users keep an eye on the pools to make profits whenever an opportunity appears. Traders buy the tokens whenever a token is undervalued and sell them once they have reached the right price. Thus, they help with regulating the Thorchain market prices naturally.
Thorchain carries out transparent and autonomous asset swaps through its native assets rather than wrapping up the crypto tokens. The liquidity providers help with facilitating this process by locking their assets in the liquidity pools. Any network participant can become a liquidity provider by adding liquidity to the existing pools.
The users can also propose new pools for the tokens that are supported by the chain. Unlike centralized exchanges, liquidity providers have complete control of their assets. It means only the original depositor can withdraw funds from the liquidity pool.
Node Operators are called ThorNodes in the Thorchain network. As it’s mentioned above, these users validate the transactions with the help of a proof-of-stake consensus mechanism.
Swappers swap their crypto tokens through the Thorchain vault. If a user wants to swap BTC for ETH, he will send BTC tokens to the Thorchain network. The network will first swap it with RUNE and then the RUNE will be swapped with ETH. The network then sends the ETH tokens to the user depending on the BTC tokens deposited.
Rune Use Cases
Rune is the native token of Thorchain that can be used for several purposes within the network.
Settlement Asset – The main use of the Rune token is that it facilitates swaps between two pools.
Security – The node operators add their Rune tokens as collateral when becoming Thornode operators. These node operators help with keeping the network secure.
Governance – The Rune token holders can participate in the voting process to prioritize the assets or chains.
Rewards – The node operators and liquidity providers receive Rune tokens as a reward for their contribution.
Thorchain is a decentralized protocol that enables users to swap crypto tokens of different blockchain networks without having to deal with a centralized authority. It even eliminates the need for wrapping tokens. The users can independently swap crypto tokens with a reasonable swapping fee.
If you need more information about how Thorchain works, feel free to get in touch with us.