THORChain: A Guide to RUNE

THORChain: A Guide to RUNE

THORChain stands out as a pivotal development in the decentralized finance (DeFi) arena, offering a cross-chain liquidity protocol that revolutionizes how users exchange assets across different blockchain networks. Unlike traditional DeFi protocols that operate within the confines of a single blockchain, THORChain employs a decentralized exchange (DEX) model based on the Cosmos software development kit (SDK). This model enables seamless asset swaps across previously incompatible blockchains.

The cornerstone of THORChain's functionality is the automated market maker (AMM) model, a novel concept in the DeFi space. In this system, users contribute to liquidity pools, depositing a fixed ratio of cryptocurrencies. These pools facilitate trading, with the deposited assets forming the pairs used in exchanges. Protocols like Uniswap and Balancer have popularized liquidity pools, allowing for decentralized, peer-to-peer asset swaps within the Ethereum network. THORChain extends this capability across multiple blockchains, enhancing the scope and utility of AMM protocols.

RUNE, THORChain’s native token, is integral to its ecosystem. It pairs with every asset in the liquidity pools, facilitating trades and enhancing liquidity. RUNE's multifaceted role includes fee payment, governance participation, and network security, making it a cornerstone of THORChain’s operational and economic architecture.

As the DeFi sector evolves, the demand for efficient, reliable, and cross-chain liquidity solutions grows. THORChain's emergence on its mainnet in April 2021—originally developed on the Cosmos network—marks a significant milestone in meeting the demand for multi-currency exchanges without the need for asset wrapping. It underscores the project's commitment to providing a frictionless and decentralized trading experience across diverse blockchain platforms.

For those new to THORChain or the concept of RUNE, this guide aims to equip you with the necessary understanding to engage confidently in trading within one of the most user-friendly experiences in the market.

How does THORchain work?

THORChain is at the forefront of decentralized finance (DeFi), enabling seamless cross-chain swaps through its innovative network. This protocol allows users to exchange non-native tokens across different blockchain networks using a dual-swap mechanism, where THORChain's native token, RUNE, acts as an intermediary in every transaction.

Platforms like THORSwap, the first multichain decentralized exchange (DEX) to utilize THORChain, leverage this protocol to enable users to swap any two chosen assets. The process involves a user first exchanging their asset for RUNE in one liquidity pool, then trading RUNE for another asset in a second pool. This double swapping, enabled by THORChain’s continuous liquidity pool (CLP) model, allows for instant execution without users needing to take custody of RUNE themselves.

The protocol adapts a model similar to Bancor’s continuous lending pools, where non-native tokens are deposited into liquidity pools alongside RUNE. These pools, managed by operative nodes, not only facilitate swaps but also allow users to deposit funds to earn yields based on their contribution.

THORChain's ecosystem supports various participant roles:

  • Liquidity Providers (LPs): These users supply assets to the liquidity pools, earning block rewards and swap fees in proportion to their contribution.
  • Swappers: These are regular users who engage in trading various crypto assets on the platform.
  • Traders: Particularly focused on arbitrage, these participants help maintain price consistency across exchanges by adjusting pool compositions based on market values.
  • Node Operators: They bond RUNE to support the network’s proof-of-stake consensus mechanism, ensuring transaction validation and network security. Nodes, required to bond significant amounts of RUNE, play a crucial role in network maintenance and are rotated based on performance to enhance security.

THORChain's innovative use of CLP and its proof-of-stake model underline its commitment to providing a secure and efficient environment for cross-chain trading in the DeFi landscape.

The Origins and Development of THORChain

THORChain, a significant player in the decentralized finance (DeFi) space, was initiated by an anonymous team during the Binance Dexathon in 2018. This anonymity was intentionally preserved to maintain the decentralized ethos of the protocol, avoiding the centralization of power typically associated with having a known founder or an official development team. Instead, all development activities and updates occur openly on GitHub, reflecting the project's commitment to transparency and community involvement.

The THORChain team operates in a unique ecosystem where developers upload code to enhance network functionality, supporting nodes that depend on stakers. These stakers contribute to the THORChain exchange market by bringing funds, while swappers utilize these funds for transactions, maintaining the economic vitality of the protocol.

THORChain's journey from concept to operation has seen both achievements and challenges. After raising $1.5 million through an initial DEX offering (IDO) in July 2019, the team launched BEPSwap, its first market product allowing swaps between BEP-2 tokens on what was then known as the Binance Smart Chain. This product marked THORChain’s initial foray into enabling multi-asset liquidity pools.

The launch of the multichain chaosnet (MCCN) in April 2021 expanded THORChain's capabilities, enabling cross-chain swaps between major cryptocurrencies like Bitcoin, Ethereum, and Litecoin. However, the network faced significant setbacks in July 2021 with two consecutive hacks, resulting in losses exceeding $13 million. These events spurred the development team to enhance security measures and refine the protocol’s code, ultimately restoring most network functionalities by October 2021.

Further bolstering its renewal, THORChain concluded a private token sale in October 2021, raising an additional $3.75 million, led by IDEO CoLab Ventures. This funding has helped reinforce THORChain's position as a robust, secure platform for cross-chain decentralized exchanges.

The Unique Features of THORChain

THORChain distinguishes itself in the crowded decentralized finance (DeFi) space through its innovative approach to liquidity and token exchanges. One of its key features is the dynamic fee structure that effectively mitigates slippage, reducing the likelihood of liquidity loss and addressing the issue of impermanent loss. This makes the trading experience more stable and predictable for users.

Further enhancing its uniqueness, THORChain boasts a user-friendly interface that simplifies the crypto exchange process. This interface is underpinned by a suite of cutting-edge technologies that facilitate smooth and frictionless transactions across various blockchain networks.

Unlike many other blockchain projects, THORChain operates as a non-profit organization. Its development team, which remains anonymous to preserve the decentralized nature of the project, does not retain any RUNE tokens collected as transaction fees. Instead, these are redistributed among network participants, promoting a fair and equitable ecosystem.

THORChain supports token exchanges from major blockchain platforms including Ethereum, Bitcoin, Binance Smart Chain, and Litecoin, allowing near-instant swaps. This interoperability is achieved through its unique cross-chain exchange protocol, which leverages liquidity pools that pair assets with RUNE to ensure liquidity and enable seamless transactions.

Additionally, THORChain's commitment to decentralization extends to its governance model. The protocol is governed by its community through a decentralized voting process, allowing token holders and active participants to shape the future direction of the network.

Understanding the Value of THORChain and Its RUNE Token

THORChain's value is deeply rooted in its robust technical infrastructure, advanced technology, and broad utility within the cryptocurrency sector. These attributes not only draw users to the network but also bolster the overall worth of the project. Key developments such as the launch of the THORChain mainnet in April 2021 have been pivotal, marking significant milestones on the project's roadmap and adding substantial value.

The intrinsic value of THORChain, however, may not always align with its market price due to the inherent volatility in the cryptocurrency market. Prices of RUNE, the native token, are susceptible to rapid fluctuations, including trend reversals and unpredictable spikes, reflecting the dynamic nature of crypto markets.

RUNE's crucial role in THORChain’s ecosystem further underscores its value. It is essential for all network operations, including paying transaction fees, rewarding liquidity providers, securing the network through staking, and facilitating governance. Each asset swapped on THORChain is paired with RUNE in liquidity pools, making it indispensable for the network’s cross-chain functionality.

The economic model of THORChain is also designed to ensure the scarcity of RUNE, mirroring the deflationary models of cryptocurrencies like Bitcoin. Originally set at about 1 billion tokens, the supply of RUNE was reduced to 500 million in 2019, following a significant token burn. This limited supply serves as an anti-inflation mechanism and could position RUNE as a viable long-term store of value. As of now, 334,467,120 RUNE tokens are in circulation, with the total supply capped at 500 million tokens.

The token's distribution was strategically planned, with 44.09% allocated to service nodes, 10.4% for operational costs, 10% to the community, and another 10% to the team and advisors, ensuring a balanced and sustainable ecosystem.

The market cap of THORChain, calculated by multiplying the number of RUNE in circulation with its current market price, not only reflects its monetary value but also its comparative stance within the broader cryptocurrency market.

Choosing the Right THORChain Wallet for Your RUNE Tokens

Selecting the appropriate wallet for your RUNE tokens is crucial, especially considering that RUNE is available on multiple blockchains, including Binance Chain and Ethereum. This means it can be stored in wallets supporting BEP-2 or ERC-20 tokens. The decision on which type of wallet to use generally depends on the amount of RUNE you need to store and your specific usage plans.

Hardware Wallets:

For the highest level of security, hardware or cold wallets like Ledger or Trezor are recommended. These devices offer offline storage and backup options, safeguarding your assets from online threats. Although they come with a higher price tag and might require more technical know-how, hardware wallets are ideal for experienced users holding substantial amounts of RUNE.

Software Wallets:

Software wallets are another viable option, available as free smartphone or desktop applications. These can be either custodial, where the service provider manages the private keys for you, or non-custodial, which utilize secure elements on your device to store the keys. Software wallets are user-friendly and convenient but generally provide less security than hardware wallets. They are suitable for those holding smaller amounts of RUNE or users who are new to cryptocurrency.

Online Wallets:

Online or web wallets offer the convenience of access from any device with a web browser. They are easy to use and free, making them suitable for users who engage in frequent trading or only need to hold small amounts of cryptocurrencies. However, as these are hot wallets, they are less secure than hardware or software alternatives. When using online wallets, it is crucial to choose providers known for robust security measures and a reliable track record.

Best Practices:

Regardless of the wallet type, always ensure you are downloading or purchasing from reputable sources to avoid counterfeit software or hardware. Additionally, it’s wise to use wallets that offer multi-factor authentication for an added layer of security.

When selecting a wallet, consider not only the security features and cost but also the user experience and the level of control you wish to have over your private keys. For large-scale operations or long-term storage, diversifying your storage solutions—using a combination of wallet types—can minimize risks and enhance security.

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