Can THORchain Bring The Thunder?

Jonathan Hobbs

2 months ago3:00 mins

Can THORchain Bring The Thunder?

It’s no secret that the crypto market has given up the ghost this year. But cast your mind back a way, and the backdrop was very different: bitcoin rebounded from $33,000 to $48,000 between January and March, and THORchain’s RUNE coin more than quadrupled in value over the same period – even if it has since given those gains right back. So if you’re considering buying the crypto dip, RUNE might just be god’s gift to your portfolio…

What makes THORchain unique?

THORchain is a decentralized exchange (DEX). It’s one of the fastest-growing sectors in DeFi, and THORchain does something other DEX projects can’t do yet: it allows users to swap coins from different blockchains.

For example, you could swap bitcoin (from the Bitcoin blockchain) for ether (from the Ethereum blockchain) using THORchain. On other DEXs, meanwhile, you’d need to create a “wrapped version” of bitcoin first (WBTC), which is compatible with Ethereum’s blockchain, and then swap that for ether.

With THORchain, you could swap actual bitcoin, and not just for ether, but for a number of other cryptoassets, including litecoin, dogecoin, binance coin and bitcoin cash.

Here’s how it works: first, your bitcoin would go to THORchain, where it would be swapped for RUNE. Then, that RUNE would be swapped for ether. And finally, THORchain would send the ether directly to your Ethereum wallet address from one of its “vaults.”

THORchain has four kinds of users who keep this whole process ticking along behind the scenes:

  • Swappers: regular DEX users who trade different coins.
  • Liquidity Providers (LPs): who provide various coins (i.e. liquidity) to the THORchain network to make the swaps possible.
  • Node operators: who secure the network and process transactions by staking RUNE as collateral.
  • Arbitrage traders: who regulate the prices of assets on THORchain by exploiting minor pricing differences for profit.

What gives RUNE its value?

In the same way that ether powers Ethereum, RUNE powers the THORchain network. And as the network grows, demand for RUNE should grow with it – which could boost the token’s price over time (all else being equal).

As THORchain’s token, RUNE is used all over the network. Swappers pay trading fees in RUNE. So with more swapping, there’s more demand for the coin. RUNE is also used by node operators for staking – and they stake a lot of it. To help secure the network, they need to stake double the amount of RUNE than the total value of assets locked inside the protocol at any given time.

In exchange for putting up RUNE collateral and securing the network, node operators earn rewards in RUNE – as do liquidity providers locking up coins for swapping. RUNE holders also have voting rights on how THORchain operates – a bit like how companies give shareholders the right to vote on corporate policy issues.

What’s the opportunity here?

DEXs may have a few advantages over their centralized counterparts. There are no barriers to entry, and anyone from any country can use them without having to part with their personal information. DEXs might be less prone to exchange outages and have better security too – since no central exchange is tasked with guarding your coins. You can also withdraw your funds at any time without delay, which is another common complaint with centralized exchanges.

As far as DEX projects go, THORchain is doing something cutting edge: allowing users to swap assets from different blockchains without going through a financial institution. And it’s planning to grow its blockchain roster to include Cosmos, Dash, ZCash, Avalanche, and Monero, to name a few. That makes RUNE a compelling bet on the future of DeFi.

If THORchain can also grow its asset base and user count, that could put some serious lightning in the token’s price.

While THORchain works behind the scenes in a complex way, it’s all seamless on the front-end. Users can interact with THORchain through DEX applications like Asgard Exchange, THORWallet and Shapeshift – which seem a lot more intuitive than competitor products.

And is there a catch?

As with all crypto projects, investing in RUNE has its fair share of risks – and three of them really stand out.

First, it’s had security issues in the past, with around $13 million worth of crypto hacked last year. Since then, its code’s been audited several times, and the general consensus among the THORchain community is that the same thing shouldn’t happen again.

Second, there’s a risk that relates to all DeFi projects. Regulators have been circling the space for a while, which could slow DeFi down in the short-term as the sector tries to meet their demands. That said, DeFi is a breakthrough technology, and tech usually finds a way to win the end.

The third risk is specific to RUNE – that is, how the coin is being morphed into its final form. See, there are actually three kinds of RUNE coins right now. The RUNE you can trade on centralized exchanges like Binance, for example, is part of either Binance Smart Chain or Ethereum – i.e. it's not the RUNE used on THORchain. To use RUNE on THORchain, you need to trade in those other kinds of RUNE for the “real” RUNE.

As part of THORchain’s finishing touches, it’s phasing out all types of RUNE except the one used on its own blockchain. This is known as the “killswitch,” and it could be a make-or-break factor in deciding the project's future. One the one hand, the killswitch would make THORchain truly decentralized, and potentially help THORchain corner the DEX market. On the other, it could weaken RUNE's position in the centralized exchange market – as not all of them will support the switch and list the new coin.

But like I said, RUNE is a bet on the future of DEXs…

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