Thorchain/RUNE

Thorchain/RUNE

Thorchain Overview

The soon to be fully uncapped Thorchain offers the only cross-chain trading ecosystem that allows native, unwrapped BTC and other cross-chain assets to earn yield from LPing and lending, without wrapping, without IL, and with very low transaction fees. Vast amounts of BTC in particular will flow towards Thorchain LP pools, but because these pools all require pairing with RUNE (similar to Bancor), RUNE will be in high demand. Those looking to HODL BTC will prefer to borrow RUNE rather than sell half of their BTC. The tokenomics of RUNE are attractive, but the yields from lending and LPing will likely be high and sustainable.

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Thorchain is more than just a bridge, it is a decentralised exchange. As such it allows swapping of tokens, but instead of only doing swaps on one chain, like Uniswap, it allows swaps across chains. Thorchain achieves this by using a similar approach to the Wormhole. Instead of a multisig smart contract that locks/unlocks funds, Thorchain uses a threshold signature scheme (TSS) across validators to sign transactions. TSS works with cryptography instead of a smart contract and thus allows it to interact with chains like Bitcoin.

Thorchain validators (Thornodes) run a node for all chains they can interact with, so if a Thornode supports Bitcoin and Ethereum transactions, it will have to run nodes for both networks. Thornodes have access to vaults on the chains they can interact with and can sign transactions of these vaults via TSS majority. A node will observe chain A for locking of funds and will release funds on chain B as the lockup is completed. The diagram below shows a highly simplified version of how tokens are exchanged.

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Thorchain — more than just a bridge

Since Thorchain is not just a bridge but also an exchange it works with liquidity pools. Liquidity providers can deposit funds per chain to ensure swapping of tokens and earn yield. To initiate a swap from ETH to BTC a wallet per chain needs to be connected, once funds are sent, Thornodes observe processing of the transaction into the vault. Once completed the outbound transaction for BTC is signed and the user receives BTC for his ETH.

Bridging via Thorchain is dependent on validators of a different chain and the approach of TSS very similar to a multisig smart contract, controlling the funds.