What is THORChain — An Overview
THORChain is an independent blockchain that operates as a cross-chain decentralized exchange (DEX). Built on the Cosmos SDK and using an AMM model, it aims to enable the exchange of assets across disparate blockchains in a non-custodial manner (AMMs, or “automatic market makers”, allow digital assets to be traded automatically and without permission by using liquidity pools instead of a traditional buyer-seller exchange). One of the key selling points of THORChain is the ability to swap Layer-1, or native, assets across multiple chains; that is, no swappable assets on THORChain are “wrapped”, which would peg an undesirable level of trust on trading.
Regarding the mechanics of the exchange, Thorchain’s protocol features a cross-chain bridge system, known as the Bifrost Protocol, to connect different chains.
THORChain implements something called Continuous Liquidity Pools (CLPs) to facilitate the exchange of assets between these chains. The CLP is arguably one of the most important features of THORChain, which, simply put, adds transparency to the asset prices because they are defined by the swap activity instead of an external oracle. CLPs also allow anyone to arbitrage the pool (i.e. regulate the prices by buying low from one exchange and selling high in another), creating more swap fees for all LPs. Of utmost importance to users of the THORChain network is that CLPs reward users for contributing to the liquidity in each pool.
RUNE
THORChain features a native token, RUNE, which owners can use to participate in the network or add to a liquidity pool. Rune is integral to the THORChain ecosystem, in four key roles:
- Liquidity (as a settlement asset)
- Security (as a sybil-resistant mechanism, and a means for driving economic behavior)
- Governance (signaling priority on-chain)
- Incentives (paying out rewards, charging fees, subsidizing gas)
Swaps and chains
THORChain initially launched with support for assets from Bitcoin (BTC), Ethereum (ETH + ERC Tokens), Bitcoin Cash (BCH), Binance Chain (BNB + BEP2), and Litecoin (LTC). Support for other tokens and assets is continually being added.
When a swap is made, an asset is sent to a pool’s or vault’s address. A pool address is a special wallet address that is watched by the nodes operating the blockchain. Once two-thirds of nodes confirm the address received the coins, they send the other asset back to the user. As previously stated, swaps are native, so when you send BTC to swap for ETH, you send the BTC to a BTC address on the Bitcoin blockchain and will receive ETH from the Ethereum to your ETH address. At no point will either currency be wrapped and packed on a chain it wasn’t designed for.
How to use THORChain?
To use THORChain, you’ll need to access an interface such as Thorswap. Then follow these steps:
- Download a wallet compatible with Thorswap. You can try out the XDefi wallet, a browser plugin with great THORChain compatibility. Support for hardware wallets has now been added and the THORChain ecosystem also offers a Keystore wallet where all needed chains are supported.
- Connect your wallet to the interface.
- Swap, deposit liquidity, or withdrawal assets.
- That’s it!
If you have any questions regarding how to navigate the THORChain network, please feel free to join LP University (link below).
Looking at the future of THORChain?
Thorchain’s team believes its protocol of cross-chain swaps is just the beginning. They hope to build a protocol for all of DeFi, offering synthetics and even borrowing and lending services across various blockchains.
In the near term, the team is to beef up the security of the protocol. After a thorough review, the team will then begin adding more pools for other chains, including Dogecoin, Zcash, and Monero, and remove protective measures currently live on the network, which will turn the chaosnet into the mainnet.
Feel free to hop into the TC University Discord to chat about this, or any other THORChain questions that you may have.
Explore THORChain: Website, X, Telegram, Developer Discord.
Explore Maya Protocol, the first friendly fork of THORChain: Website, X, Discord, Telegram.
Decentralized, permissionless, non-custodial, trust-minimized, open-sourced, economic-secured, non-wrapped, native-to-native cross-chain swaps, savings and soon, lending!
