THORChain: An Interchain DeFi Ecosystem
Disclaimer: Your capital is at risk. This is not investment advice.
Token Takeaway: RUNE;
THORChain is a fully decentralised and permissionless cross-chain trading platform. Built using the Cosmos SDK and Tendermint, it creates a highly liquid and secure trading environment between multiple blockchains. This Token Takeaway will explore the fundamentals of THORChain and examine the value proposition of its native token, RUNE.
Overview
In the wake of heightened regulatory pressure on centralised crypto exchanges, the demand for efficient, secure and decentralised digital asset swapping is increasing more than ever. A platform that facilitates all these features is THORChain.
Created by an anonymous team of developers in Binance Dexathon (DEX coding competition held by Binance) in 2018, THORChain is a cross-chain, permissionless DeFi platform that allows users to swap tokens among multiple blockchains without wrapping the assets. It offers seamless interoperability between blockchains, including Bitcoin, Ethereum, Litecoin and BNBChain, allowing users to swap assets directly on the platform without any intermediaries. THORChain was purpose-built to minimise trust and dependency to become a scalable, economically secure cross-chain communication and settlement layer.
As opposed to the illiquid and fragmented DeFi trading market, THORChain aims to offer a highly liquid and reliable trading experience for users in a fully trustless manner. This is achieved by its single-asset settlement model, where the platform’s native token, RUNE, acts as the settlement asset to maximise liquidity and efficiency.
What Problem Does THORChain Solve?
Centralised exchanges (CEXs) wield an excessive amount of influence over users by taking custody of their funds, thereby gaining the potential to mishandle or infringe upon users' assets and terms of service. The notable collapse of the FTX exchange served as a stark reminder of the risks associated with relying solely on CEXs.
These challenges accelerated the development of decentralised exchanges (DEXs), which give users full control over their assets. However, current decentralised solutions have limited liquidity, resulting in slow and costly transactions. Moreover, the liquidity is spread across an unnecessarily large number of liquidity pools, resulting in a fragmented market. This liquidity deficit discourages traders who prefer platforms that can execute trades without incurring losses due to slippage. Ironically, the same traders play a pivotal role in providing the liquidity needed to eliminate slippage in the first place. Unless DEXs can match the liquidity and efficiency levels of CEXs, their adoption rates will likely remain low compared to their centralised counterparts.
In this landscape, THORChain steps in as a potential game-changer. The project is laser-focused on remedying this core issue by significantly boosting liquidity in the decentralised exchange sphere. By doing so, THORChain aims to elevate DEXs to a level where they can truly contend with the dominance that CEXs currently enjoy.
How Does THORChain Work?
At the heart of all the economic activity on THORChain lies its native token, RUNE. It acts as the fundamental settlement asset and serves as the intermediary for all swaps conducted on the platform.
