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THORChain is a cross-chain swapping protocol. Simply put, it means you can have BTC and swap it for ETH if you wanted to through THORChain without having to deal with any centralized entity. This is a game-changer because up until this point, it did not exist.

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Protocol Functionality

From a developer perspective, maintaining transaction security with no errors when dealing with cross-chain swaps is no simple task, which is why the developers have decided to combine multiple proven technologies to create the desired outcome rather than innovating from the ground up which may result in a longer trial/error process. There are 3 key technologies you should know about.

1) 1-way State Pegs (Bifröst Protocol)

In simple terms, the “Bifröst” modules deal with the differences in connection requirements needed by different chains (configurations/transaction details). Nodes keep watching vault addresses on the integrated chains and whenever an inbound transaction is seen, a new THORChain witness transaction is created which registers the Tx details. Once majority of nodes agree on the transaction, it changes from a pending transaction to a finalized transaction.

2) State Machine (dubbed THORChain State Machine)

Once the transaction is finalized, the state machine takes care of computing state changes, transaction ordering and delegates it to the outbound vault which finishes with the Tx out; it includes the outgoing chain in question.

3) Signer Module & TSS Protocol

As the final transaction is created, it is sent to the signer to serialize and send it to the required chain. The TSS (threshold signature scheme) protocol coordinates key-signing. Then the transaction is broadcasted.

Market Participant Roles

Participants in the THORChain ecosystem are split into four categories:

Liquidity Providers: Providing assets to the pools to be traded against, they are paid a reward in exchange for that service.

Node Operators: Process transactions and secure the vaults/assets.

Traders: Use the protocol to swap one asset to another.

Arbitrageurs: Capitalize from any price discrepancies which maintains an overall efficient pricing system.

In DeFi, most protocols employ oracles for price feeds such as Chainlink. However, these pose a threat: price manipulation of the indices to trigger unwanted events such as liquidations on protocols (called Oracle attacks, real example here). With arbitrage, any price discrepancy is always taken advantage of by traders/bots which maintains an efficient market, just like the price of Bitcoin or Ether is normalized between different exchanges (this is done through arbitrage).


As of now, THORChain operates on BEPSwap. A DEX powered by THORChain validators who maintain the integrity and security of the pooled assets. This is limited to assets that live on the Binance Chain. The total notional amount of assets locked in Binance Chain DeFi is under $900 Million (remember this as it’ll come in handy later with the valuation mathematics).

The next interface that is currently in testnet is ASGARDEX, a DEX powered by THORChain which will power cross-chain swaps. The first chain being tested now to add after Binance Chain is the Bitcoin network. Once implemented (now in testnet) it will allow anyone to swap between BTC, BNB and any BEP2 asset. When Ethereum is added, the world of cross-chain swaps would expand massively given the $25 Billion locked in Ethereum DeFi.

The Token: RUNE

This is where things go up a notch. RUNE, by far, has one of the strongest economic models I have seen to date. As you know, one of the most appealing aspects of DeFi protocols is revenue which can and is palpable by token holders/stakers. This gives intrinsic value to the assets. RUNE benefits from this revenue, but RUNE must also be kept at a 1:1 proportion in pools with other assets and its supply is limited (500,000,000 RUNE).

1) Revenue

The revenue is earned by liquidity providers and node operators. This comes from two sources: emissions (inflation) and protocol fees.

Inflation begins at 30% APR and drops to a smaller 2% by the end of the decade. Two-thirds of the emissions are sent to node operators who process the blocks and the remaining third is shared between liquidity providers.

Fees are a more sustainable source of income which has a very high ceiling with protocol adoption and use. The team also innovated a lot in this area.

The first type of fee paid is the Network Fee which both pays for network resources and external gas costs.

The second fee is the Slip-Based Fee. A protocol like Uniswap, charges 0.3% per transaction, regardless of the size of the pool being traded against. This poses a problem, if the BTC/USDT pool is attracting the most volume then naturally liquidity providers will gravitate towards it to capture the fees. This decreases the depth of other pools. By charging a slip-based fee, meaning a fee proportional to the order size/liquidity available, pool depths converge to the size of transactions passed through them.

Overall, this generates revenue for RUNE holders who are active on the network. This gives the token intrinsic value. For example, RuneRanger whom has the minimum requirement for node operators (1,000,000 RUNE) earns a very handsome sum.

2) Base Currency

Pools are one of the most impressive innovations in decentralized finance. Here is a brief explanation of liquidity pools in DeFi:

Collective assets/funds are locked in a smart contract with which other traders can trade against. A liquidity provider provides both BTC and ETH to the BTC/ETH pool, a trader comes along whom owns ETH and sells it to the pool in exchange for BTC. This liquidity that the trader requires is available for use at any time thanks to the pool, rather than orderbooks in a CEX.

Why would anyone provide assets as a liquidity provider you ask? In exchange for earning trading fees.

THORChain operates in a similar fashion, pools to be traded against. However, if they are to offer BTC, ETH, BNB, XMR and XRP as assets and create every single combination possible, this would require 9 different pools for 5 assets and this number only grows (499,500 pools for 1,000 assets). Which makes having deep liquidity on every one of these pools an impossible task. Instead, THORChain uses a simpler approach: RUNE as the base currency.

In the example listed above, there would only be 5 pools needed: RUNE-BTC/RUNE-ETH/RUNE-BNB/RUNE-XMR/RUNE-XRP. Pools also must be 1:1 balanced. Meaning if there’s $1,000,000 worth of BTC in the RUNE-BTC pool, it must be balanced with $1,000,000 worth of RUNE. The more assets that make it onto the pools, the more RUNE captures in value. Given that there can only be 500M RUNE, this means the only way for any of this to be possible if THORChain is to be used and have deep liquidity, would be a ridiculously high price per RUNE.

The other aspect to factor in is, in a bull-market the value of the pooled assets increases which means the value of pooled RUNE must also increase. Additionally, due to the mechanism called the “Incentive Pendulum”, for each 1 RUNE pooled 2 RUNE are incentivized to be bonded by node operators.

TLDR: $1M in pooled assets (such as BTC, ETH etc.) will cause the total value of RUNE to be $3M to reach equilibrium.

Incentive Pendulum

To maintain the 67/33 (~2:1) equilibrium in the network for optimal functionality between bonded RUNE and pooled RUNE, incentives are dynamically changed.

At any point in time, THORChain can be in one of five states: Unsafe, Under-bonded, Optimal, Over-bonded, Inefficient, Optimal State (67/33).

This maintains the reward distribution as is since the network is at an optimal ratio.

Unsafe State

In order to incentivize an increase in bonded RUNE, the rewards are skewed towards node operators until the Optimal State is again reached.

Inefficient State

The polar opposite of the Unsafe State, where pooled RUNE needs to be increased and hence liquidity pool rewards are boosted to return the Optimal State.


You read 2,000 words which helped you gain an understanding of THORChain and the economic model of its native token RUNE. Now we reach the bread and butter of this fundamental analysis report: Valuation.

As I stated at the start of this report, this token (RUNE) is one I expect to reach the Top 10 MCap list in 2022 due to an incredibly strong economic model.

My crypto-market theory states the Total Market Cap reaches $3 Trillion in 2022 (this is conservative; ~3x from here). Given THORChain is integrating both Bitcoin and Ethereum chains next, we’d likely see a very significant jump in pooled assets.

*With Binance Chain, the TVL is about $850 Million, Ethereum’s DeFi TVL is $25 Billion (30 times larger).

With cross-chain swaps going live, the volumes will ramp up as well which only generates more fees and encourages further liquidity to be provided, increasing the value of the RUNE pooled. (Positive feedback loop).

With a $3 Trillion in Total MCap, it is reasonable to project that THORChain (with first movers advantage) gains access to 0.5% of those assets. This is the equivalent of $15 Billion in liquidity and is provided on the protocol. Due to protocol design, this means RUNE should have an MCap of $45 Billion, translating to $90 per token (500,000,000 tokens in total supply).

~William Forester

Are you planning in investing in RUNE? We’d love to hear about your investing journey, so come get involved on our Forum! Reach out using the comment box below or email You can also reach us on Facebook, Twitter, or Instagram.

<Edited by Coast to Coast Finance>

This article is for educational purposes only and is not intended to be taken as investment advice. Coast to Coast Finance does not own positions in any of the stocks mentioned in this article, nor does Coast to Coast Finance intend to open positions in, or recommend opening positions in, these stocks or funds. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.

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