An Introduction to THORChain for Bitcoiners

● THORChain allows anyone in the world to trade one digital asset on one chain with another digital asset on another chain in a frictionless, decentralized, trust-minimized way. There are no custodians. There is no wrapping.

● THORChain also allows anyone to earn yield on their digital assets, and this too is provided in a frictionless, decentralized, trust-minimized way.

The original laser eyes

Liquidity Providers (User Group A): These users deposit assets (like native bitcoin or ethereum) into liquidity pools. In return for depositing their assets, they earn yield (from the trading fees of Group B).

Traders (User Group B): These users desire to exchange one asset for another, such as native ETH for native BTC. They send ETH in and get BTC out.

Node Operators (User Group C): These users run THORnodes, which comprise the THORChain Node (Tendermint/Cosmos SDK), and a node for each supported chain. A node operator will thus be running a Bitcoin node, Ethereum node, etc.

Sidenote: It was a breakthrough in multi-party computation published in 2019 that enabled this model. Bitcoiners are all aware of multi-sig, but on the Bitcoin protocol, multi-sig is protocol-limited to a set of 20 signers. And on other blockchains, multi-sig either doesn’t exist at the protocol level (such as in Ethereum) or is implemented in a bespoke way that doesn’t translate across chains. TSS/MPC improves on standard multi-sig because it works on practically any blockchain, and it has no technical upper bound on signers (though performance degradation creates practical limits).

● Total Supply: 500,000,000 RUNE
● Inflation: 0
● Chain: THORChain (Cosmos SDK/Tendermint consensus)

● In THORChain, every pool is Coin X + RUNE.
● In most other DEXs (like Uniswap), every pool is Coin X + Coin Y.

● 10 assets in THORChain = exactly 10 liquidity pools (where each asset is paired with RUNE only).

● 10 assets in Uniswap = potentially 45 pools (where each asset is paired with each other asset).

● $1 of BTC in the pool
● $1 of RUNE in the pool
● This is enforced through arbitrage

● $2 of RUNE in the bond from validators
● This is enforced through competitive bidding and the Incentive Pendulum described above

● $1bn of non-RUNE assets in the pools = $3bn baseline value of RUNE.

● $1b is held in THORChain liquidity pools (across BTC, ETH, USDC, etc.)
● Attacker wants to gain control of the network to steal these assets

● The $1b liquidity pool is made of
● $500m various crypto assets
● $500m BTC 1:1 in each pool
● Under the incentives, THORChain Nodes will have posted $2b bond in BTC

● Attacker acquires (or already has) $1.333b in BTC for 2/3 majority stake.
● With majority stake, Attacker can now theoretically steal
● $500m crypto assets +
● $500m BTC (from pools) +
● $666m of BTC (from the other nodes’ bond)
● Attacker can also sell original $1.333b BTC investment
● Net results to attacker: $1.67b net profit

● The $1b liquidity pools are made of
● $500m various crypto assets
● $500m RUNE 1:1 in each pool
● THORChain Nodes have posted $2b bond in RUNE

● Attacker acquires $1.33b of RUNE for 2/3 majority stake
● With 2/3 majority stake, Attacker can now theoretically steal
● $500m crypto assets +
● $500m RUNE (from pools) +
● $666m of RUNE (from the other nodes’ bond)
● But the second this occurs, RUNE plummets toward zero (THORChain HACKED!!!)
● Net results to attacker: Net loss of $833 million ($500m + pennies in RUNE)

thorchad

● LP can borrow RUNE rather than buy it. This will lead to robust lending markets for RUNE.
● LP can hedge RUNE to be risk-neutral. This will lead to robust derivative markets for RUNE.
● Intermediaries (smart contracts?) can match RUNE holders with LPs, preventing either from needing to hold two assets.
● Smart entrepreneurs will conceive other mechanisms as well.

● Hacks, insider thefts, catastrophic bugs
● Operational risks (what are they doing with that bitcoin?)
● Seizure and freezing risks (government or the company can take your BTC).

● Trade native bitcoin with other digital assets in a decentralized way at scale
● Earn a yield on native bitcoin in a decentralized way at scale

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