How Can THORChain Help Replace CeFi?
Read in 6 mins
In this episode, host Dan Smith along with Sam, Matt & Westie, researchers in Blockworks, speak with Chad Barraford to discuss how THORChain will replace CeFi, the mechanics behind THORChain's security model, and much more!
Read our notes below to learn more.
Hot Seat/Cool Throne
DCG and Barry Silbert may engage in a tender offer to decrease the discount at which GBTC trades compared to its net asset value.
Unclear how DCG would have the capital to do this if it is currently experiencing a liquidity crunch.
There has been speculation that the money may come from liquidating some of DCG's Bitcoin or other holdings, or from selling off assets.
Ren, a wrapped asset protocol announced that it will shut down its mainnet and encourage users to bridge their assets back to the primary chain in order to recover their value.
This has raised questions about the long-term viability of wrapped assets and the potential for other wrapped assets to face similar issues.
Curve vs Uniswap by Flipside Insights
The average volume share of two Ethereum DEXes observes that Uniswap has been the dominant DEX for some time, but that Curve has recently gained some market share.
DEX with the best-centralized order book will ultimately win in terms of volume and Uniswap has funded a team to develop one.
THORChain, the Cross-Chain DEX
Chad doesn’t view Thor chain as a bridge because it involves exchanging one asset for another, rather than simply transferring value between chains.
Thor chain is more of a decentralized alternative to a centralized exchange.
Thor chain is working on building new protocols that can compete with centralized exchanges and offer faster, cheaper, and more transparent services.
Thor chain is targeting a wider global audience rather than focusing on specific countries like most centralized exchanges.
Rune’s Unique Economic & Security Design
Thor chain has a token called $RUNE that is used to ensure economic security for non-native assets on the network.
In the event that all assets on the network were stolen, $RUNE token would go to zero, which would cost more money to buy than to simply burn it and acquire a smaller amount of other tokens.
Economic security is important to prevent economic incentives for attackers to target the network and to protect against attacks against the network and stealing valuable assets.
Thor chain's unique asset helps to ensure that attackers would lose more value than they gain in an attack.
The network undergoes a process called "churn" every few days in which it removes certain nodes due to inactivity, low efficiency, or not having the latest version.
There are currently around 86-88 nodes in the network.
It would be expensive and difficult to gain a two-thirds majority of these nodes because one would have to have a higher bond size than all other nodes in the network.
There are risks and benefits of integrating with IBC (Inter Blockchain Communication Protocol).
Wants to support various chains including Bitcoin and Ethereum, in order to be more powerful and flexible than IBC.
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Connecting New Chains to THORChain
The process of adding a new blockchain such as Solana to the network includes creating a chain client, conducting smoke tests, adding to the exchange.js library, and marketing the new addition to the community.
The technical requirements for adding a new blockchain include the ability to generate private keys and the cost of running a node on the network.
Community plays a role in deciding whether or not to add a new blockchain.
Binance Chain and Ethereum L2s are potential additions to the network.
Incentivizing Liquidity
The value of $RUNE can affect the security and TV of a system.
If the value of $RUNE increases, it can create more demand for $RUNE causing the security and TVL to increase.
The system has a natural incentive that pushes yield towards nodes and away from liquidity pools depending on the market conditions at the time to encourage node operations and create a two-thirds to one-third balance between the two.
THORChain Savers Vaults & Synthetic Assets
In the early days of building THORChain significant advancements were made such as using a flip-based feed model to charge fees but faced a problem with attracting liquidity.
The solution was to offer single-sided yield, where users could earn Bitcoin without exposure to other assets.
The yield comes from the pool itself, which generates it from swaps, trades, and block rewards.
Synthetic assets which are secured and redeemable for the underlying asset are used to facilitate trades between synthetic and layer 1 assets.
The goal is to increase the number of synths in the network to increase the yield for users and provide an alternative to centralized services.
Impermanent Loss Protection & LP Risk Profiles
There is a possibility of removing the Initial Liquidity Protection (ILP) feature.
ILP was implemented to incentivize liquidity providers and reduce the risk of losses for dual-sided liquidity providers.
The network has now introduced Saver vaults as another option for risk-averse users to earn yield without being exposed to ILP which also changes the risk profile of traditional dual-sided liquidity providers.
Synth Caps are also discussed as a way to limit the amount of liquidity provided in certain pools.
The goal is to balance the needs of liquidity providers and users while also maintaining the stability of the network.
Managing Risk via the Synthetic Utilization Cap
The liquidity pool is more leveraged when the utilization of synth is higher.
It is not advisable to enable the Protocol Owned Liquidity (POL) to provide liquidity to pools with utilization below 50% because it can create a situation where there is more buy pressure and sell pressure on $RUNE leading to a decrease in its value.
At 50% utilization the buy and sell pressure cancel each other out, but at higher utilization levels the buy pressure becomes greater than the sell pressure.
The POL allows the utilization of synth to scale as high as possible up to a certain hard cap, while also protecting the value of the LP.
If the value of synth were to significantly increase or decrease, the value of the LPS would also change but the Pol would intervene to support the LPS and prevent impermanent losses.
The ultimate backstop for the value of synth and the LPS is the reserve, which currently represents about 40% of the circulating supply of $RUNE.
THORFi Lending
Working on an innovative and experimental lending design that is structurally different from other options in the DeFi space.
It allows for asset-agnostic and chain-agnostic services including the ability to support layer one Bitcoin loans.
The design also allows for loans with zero percent interest, no liquidations, and no expiration, making it a public good network rather than a profit-driven private entity.
The design allows people to take out loans with their cryptocurrency and not have to worry about stress or fluctuating interest rates.
It is also revolutionary in that it ensures that borrowers always get their collateral back.
THORChain as Backend Infrastructure
Products built on Thor chain is user-friendly.
User interfaces will be built on top of the Thor chain, like the XDeFi wallet.
Thor chain will not need to build out its own user interface in the future.
Hopes that Thor chain will fade into the background and be an integral part of the crypto infrastructure, even if users are not aware of it.
Trustwallet has recently integrated with the Thor chain.
Check out these important links
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