Thorchain is a Cosmos blockchain-based protocol that exchanges crypto assets such as Bitcoin and Ethereum between different networks.
While crypto markets are maturing, developing more and more financial products, and gaining consumers, most cryptocurrencies are still blocked in their home networks. This means that tokens minted in the Ethereum blockchain cannot be used or traded directly in another such as Bitcoin or Binance Smart Chain.
The exchange of digital assets in different chains depends on intermediaries in the form of exchanges such as Binance and Coinbase, or token versions of these assets, such as Wrapped Bitcoin. This means that while isolated blockchain ecosystems are liquid (offering buying and selling opportunities), crypto markets are generally not, due to their fragmentation.
So, what is Thorchain
Thorchain is a network protocol built-in Cosmos, the so-called “blockchain internet”, which aims to make the entire crypto industry liquid. It seeks to achieve this by creating conditions for trading in non-native currencies, such as exchanging BTC for ETH, but in a fully decentralized way. In essence, it does much of what Binance and Bittrex do – but without taking over third-party assets.
The protocol also feeds a decentralized exchange (DEX), which bears the same name. Like Uniswap or SushiSwap, Thorchain DEX allows anyone to trade or lend their cryptocurrencies, providing liquidity through a pool and, in return, receiving a return (“return”) from them.
The Brief History
The THORChain project began in 2018 with the belief that using centralized exchanges to transfer crypto-assets across blockchains was problematic.
The greater goal of the team behind the project, and its community is to create decentralized liquidity to eliminate the need for third parties that may and have restricted access to individuals’ financial products or services for a number of reasons.
How do DEXs work?
THORChain modifies a protocol called continuous lending pools, which is used by the Bancor DEX, to facilitate cross-chain swapping of non-native tokens. All supported cryptocurrencies that aren’t native to the network, as well as the native token RUNE, are put into liquidity pools.
When a user initiates a trade, i.e. an exchange between two non-native assets, the system automatically exchanges one token for RUNE, then exchanges RUNE for the other token. Essentially, double swapping with instant execution is what enables non-custodial exchanges on the THORChain protocol.
HORChain (RUNE) Coin
The total coin supply is 500 million. The token, like many other cryptocurrencies, has a finite supply. Because of the limited availability, no new RUNE tokens will be generated once the current supply has been depleted. RUNE might be a useful long-term store of value because of its restricted supply, which functions as an anti-inflationary mechanism.
The RUNE token is currently available on multiple blockchains, including Binance Chain (as a BEP-2 token) and Ethereum.
Thorchain is a Proof-Of-Stake (instead of Proof-Of-Work) blockchain, i.e. is maintained and protected by node operators that bind and earn RUNE. The nodes in question are computers that validate exchanges and receive rewards for their work.
Initially, only 100 validators are available, but the network can be expanded up to 300. They are shortened periodically by “churning”, which ensures the competitiveness of the network, gives anonymity to its operators and provides an additional level of security. In addition, not every node can become a validator – the condition is to stack at least 1 million of the protocol token.
Additionally, if one of them acts maliciously, he loses his stolen RUNE coins, while those who act correctly receive a portion of the proceeds as a reward. In case of hacking or attempted theft, the connected tokens guarantee the checkers and go to the market makers. This ensures the honesty of the validators.
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The benefits of using a DEX
DeFi is the place to go if you’re looking for a hot token in its early stages. DEXs have an almost infinite number of tokens, ranging from the well-known to the bizarre and completely random. Because anybody may build an Ethereum-based token and a liquidity pool for it, there will be a wider range of projects to choose from, both verified and unvetted.
Because all of the funds in a DEX trade are stored on the traders’ own wallets, they are theoretically less susceptible to a hack.
DEXs have been more popular in underdeveloped nations, where reliable banking infrastructure may not be accessible. They allow for peer-to-peer financing, quick transactions, and anonymity. A DEX allows anybody with a smartphone and an internet connection to trade.
Any DeFi system is only as safe as the smart contracts that enable it, and code might contain exploitable defects that result in the loss of your tokens (despite extensive testing). While a smart contract may function as planned in typical conditions, developers cannot predict all uncommon situations, human factors, or hackers.