What Is THORChain and Its RUNE Token?

| Updated
by José Oramas · 5 min read
What Is THORChain and Its RUNE Token?
Photo: THORChain / Medium

Here you will find all you need to know about THORChain – an independent crypto network that aims to enable the exchange of assets across disparate blockchain networks in a non-custodial manner.

The number of decentralized exchanges (DEXs) is growing, and it is difficult to choose one of them, especially for beginners. But if you’re looking into a decentralized solution that allows you to easily swap tokens across chains without wrapped or pegged tokens, then THORChain (RUNE) might be what you’ve been searching for.

What Is THORChain About?

THORChain (RUNE) is a permissionless cross-chain liquidity platform that supports interoperable blockchain communication. It is a non-custodial liquidity marketplace for blockchains that allows users to swap assets freely through multiple networks (cross-chain transfers).

To achieve this, the THORchain builds bi-directional bridges between two blockchains. So, as a user, you can freely swap any asset on the network in a permissionless, non-custodial manner.

The main idea behind the protocol was to facilitate cross-chain transactions. The team behind THORChain believed that centralized exchanges had a flawed transfer system, and users could not find sufficient liquidity to conduct them. This is why THORChain appeared.

Founders of THORChain

The team behind THORChain remains anonymous. According to a tweet from their official page, “THORChain has no CEO, no founders, no directors”. The team believes that in order to succeed, they need to remain anonymous and fully decentralized.

It’s worth mentioning that this has raised some concerns in the DeFi community. Some users are driven away by the lack of information about them. But there is a group of network developers visible on Github, where they work as a self-organized team of developers and voters.

Technology Behind THORChain

THORChain does not only work as a protocol but also relies on a set of technologies that allows addressing several issues in the DeFi space.

Firstly, the protocol uses automated market maker (AMM) technology. It allows users to trade assets in a permissionless and automatic manner. The system uses its CLPs to provide liquidity instead of relying on the order book method to find buyers and sellers.

Secondly, THORChain is a Tendermint-based network. Tendermint is a replicational software that allows developers to build customized blockchains and decentralized applications (dApps). Examples are Binance DEX, Oasis Labs, and Terra, to name a few.

Further, THORChain uses Byzantine Fault Tolerance (BFT) consensus. The Byzantine scenario sets a trust-issue situation where a system needs to rely on its actors to address a set of failures or attacks. To avoid Sybil attacks, THORChain employs a proof-of-stake (PoS) algorithm.

THORChain runs with a system conducted by validators who bond RUNE, the native asset of the protocol. Validators are allowed to validate transactions and run network nodes by staking their tokens.

The main pillars of the ecosystem are nodes. They are vital elements to support every action on the network. Nodes have three main functions: to work as a vault, to produce blocks, and to bond RUNE tokens. A node is created every three days, and the amount of capital bonded is decisive to win against other nodes (other validators). To keep the network fresh, newer nodes replace older ones. Notably, nodes can be automatically shut down if bad behaviours from malicious actors are detected.

The Launch of RUNE Token

The RUNE token is a BEP2 asset that keeps the THORChain network functioning. A BEP2 is a technical standard for the issuance of tokens in the Binance Chain. The token is used in CLPs in a 1:1 ratio-to-asset value to link all the liquidity pools in the system.

The main features of the RUNE tokens are as follows:

  • Security. To keep the network secure, validators must stake their RUNE tokens. Likewise, nodes have to bond (to lock) RUNE to become one of the 100 validators. The greater the amount of RUNE locked, the higher the chance to become a validator. Incentivizing the community to lock their RUNEs, they help to create Sybil resistance. Likewise, nodes receive two-thirds of the network’s income. As a result, malicious actors have the motivation to provide liquidity rather than corrupt the system.
  • Liquidity. As stated before, RUNEs are BEP2 tokens used in liquidity pools. Every asset is bonded to RUNE in a 1:1 ratio-to-asset value.
  • Reward. RUNE is also used as a reward, compensating liquidity providers and validators. The protocol will reward users with RUNE for good behaviour and punish others for their bad behaviour.
  • Community governance. Like other DeFi networks that try to keep their systems decentralized, THORChain uses a community-governance system that runs with RUNE. Tokens enable both providers and validators to vote.

As for the distribution of the RUNE tokens, their total supply makes up 500 million tokens. The current number in circulation reaches over 160 million. 150 million tokens were reserved for developers in the community, 220 million tokens were kept for emissions reserve.

THORChain and Binance Chain

The protocol shares a common infrastructure with Binance Chain. Cosmos, an ecosystem of interoperable blockchains, powers both THORChain and Binance with the Tendermint software. Both are compatible networks, and RUNE is a BEP2 token. The main idea was to achieve a wide distribution with Binance before its mainnet was launched in the first quarter of 2020.

What is Special About THORChain?

THORChain offers unique opportunities for DeFi with its cross-chain transactions. Thanks to its bi-directional bridges, users freely swap any asset from any blockchain. There is no need to look for buyers and sellers as there is constant liquidity.

Besides, THORChain solves several problems in the DeFi space, such as lack of liquidity, security, and governance. Although the team remains anonymous, most users like the protocol.

THORChain is also planning to develop a layer-2 system, where developers can create their blockchains on top of the THORChain.

Conclusion

The protocol is an extensive project striving to be even more than just a cross-chain platform. If THORChain succeeds with its plan to develop a layer-2 blockchain, it will become a key player and a pioneer of future implementations for DeFi platforms.

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FAQ

What is THORChain?

THORChain is a permissionless cross-chain liquidity platform that supports interoperable blockchain communication. In essence, THORChain is a non-custodial liquidity marketplace for blockchains. Users can swap assets freely through multiple networks (cross-chain transfers).

How does THORChain work?

 

 

THORChain does not only work as a protocol but also relies on a set of technologies that allows addressing several issues in the DeFi space. 

Firstly, the protocol uses automated market maker (AMM) technology. It allows users to trade assets in a permissionless and automatic manner. The system uses its CLPs to provide liquidity instead of relying on the order book method to find buyers and sellers. 

Secondly, THORChain is a Tendermint-based network. Tendermint is a replicational software that allows developers to build customized blockchains and decentralized applications (dApps). Examples are Binance DEX, Oasis Labs, and Terra, to name a few.

Further, THORChain uses Byzantine Fault Tolerance (BFT) consensus. The Byzantine scenario sets a trust-issue situation where a system needs to rely on its actors to address a set of failures or attacks. To avoid Sybil attacks, THORChain employs a proof-of-stake (PoS) algorithm.

THORChain runs with a system conducted by validators who bond RUNE, the native asset of the protocol. Validators are allowed to validate transactions and run network nodes by staking their tokens.

The main pillars of the ecosystem are nodes. They are vital elements to support every action on the network. Nodes have three main functions: to work as a vault, to produce blocks, and to bond RUNE tokens. A node is created every three days, and the amount of capital bonded is decisive to win against other nodes (other validators). To keep the network fresh, newer nodes replace older ones. Notably, nodes can be automatically shut down if bad behaviors from malicious actors are detected.

 

What is RUNE token?

The RUNE token is a BEP2 asset that keeps the network functioning. A BEP2 is a technical standard for the issuance of tokens in the Binance Chain. The token is used in CLPs in a 1:1 ratio-to-asset value to link all the liquidity pools in the system. Every asset is bonded to RUNE  in a 1:1 ratio-to-asset value.

How is THORChain governed?

THORChain uses a community-governance system that runs with RUNE. Tokens provide voting rights to both providers and validators. RUNE is also used as a reward, compensating liquidity providers and validators. The protocol will reward users with RUNE for their good behavior and punish others for their bad behavior.

How is THORChain secured?

To keep the network secure, validators must stake their RUNE tokens. Likewise, nodes are required to bond (to lock) RUNE to become one of the 100 validators. The larger the amount of RUNE locked, the greater the chance to become a validator. By incentivizing the community to lock their RUNEs, they help to create Sybil resistance.

Likewise, nodes receive ⅔ of the network’s income. Malicious actors are then motivated to provide liquidity rather than corrupting the system. As stated before, nodes are shutdown whenever bad behaviour is spotted.

What are the pros and cons of THORChain?

The pros and cons of the THORChain network can be outlined as follows:

Pros:

  • Security through an incentive mechanism to dismiss malicious actors and shutting down nodes whenever bad behaviour is spotted.
  • Multi-functioning ecosystem, as the protocol plans to expand into a layer-2 blockchain
  • Facilitation of cross-chain assets through bi-directional bridges in a permissionless, non-custodial manner
  • Constant liquidity

Cons:

  • The team remains anonymous, something that usually drives prospects away. Some Twitter users have stated that what keeps them away from entering the protocol is the absence of information about the team.
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