Table of Contents

🤔 What is THORChain?

THORChain is like a centralized crypto exchange but decentralized.

THORChain is a layer 1 blockchain that allows users to swap one token for another on a different blockchain. In simple words, it is a decentralized cross-chain exchange protocol.

It is like Uniswap but allows interchain token swaps, whereas Uniswap only allows swaps between two ERC20 tokens.

THORChain allows anyone in the world to trade one digital asset on one chain with another digital asset on another chain in a frictionless, decentralized, trust-minimized way. There are no custodians. There is no wrapping.

💡 What role does RUNE token play ?

RUNE is the nativa cryptocurrenc for THORChain ecosystem. It plays following role:

  • Staking: THORChain runs on proof of stake consensus mechanism. Validator nodes have to stake RUNE tokens to participate in the process of adding new blocks to blockchain. Their stake is also slashed if they do not behave honestly. This incentivises the nodes to work honestly.
  • Transaction fee: Users have to pay RUNE as transaction fee to include their transaction in the blockchain.
  • Governance: RUNE token holders will propose and vote on future updates to the protocol once the governance is decentralized in a few years.
  • Liquidity pools:
    • THORChain uses Automated Market Model(AMM) liqyidity pools similar to Uniswap to make market for cryptocurrencies. All the liquidity pools have RUNE token as one of the currency. This limits the number of possible liquidity pairs and ensure that limited liquidity pools have adequaet depth.
    • Traders pay liquidity fees for using liquidity pools which is shared among the liquidity providers in proportion to their liquidity.

📝 Origin of THORChain

THORChain was created at the Binance hackathon in 2018. The THORChain team continued working on the project after the hackathon ended. They managed to raise a small seed round, and developed Instaswap, a decentralized exchange built on the THORchain protocol to demonstrate the viability of a functional cross-chain DEX.

In 2019, the project picked up momentum again with the release of the GG18 Threshold Signature Scheme (TSS), which enabled the trustless cross-chain bridging mechanisms that underpin THORChain.

The advancements in TSS also coincided with meaningful improvements to Tendermint Core and the Cosmos SDK. These developments enabled THORChain to build the core protocol.

In July 2019, the team launched their first product, BEPSwap, which enables users to swap BEP2 assets (assets governed by the technical standard for creating and using tokens on the Binance Chain). Still, BEPSwap was limited only to the Binance Chain Network.

The team raised  $1.5M in an initial DEX offering (IDO) to continue work on the project. In April 2021, they released the limited mainnet known as the multi-chain chaos network (MCCN).

👴🏻 Founders

The project was started by about 20 anonymous developers in Binance Hackathon in 2018

Most of the developers have decided to remain anonymous till date except for Chad Barraford who is Technical lead of THORChain.

Chad Barraford

😌 What problems does it solve ?

Mt. Gox was the first Bitcoin exchange launched in 2010 which was based in Japan. It was handling over 70% of all bitcoin (BTC) transactions worldwide by early 2014, when it abruptly ceased operations amid revelations of its involvement in the loss/theft of hundreds of thousands of bitcoins, then worth hundreds of millions in US dollars.

Centralized exchanges expose users to risks like:

  • Theft
  • Loss
  • Seizure/ freezing funds by regulatory agencies
  • Hacks
  • Government regulation etc


However till now users did not have any other option but to use these exchanges if they had to buy /sell tokens on different blockchains.

These exchanges require and share privae information like email addresses and KYC with governemnts to track every user activity.

THORChain allows users to swap tokens on one blockchain to another token on a different blockchain without any centralized exchange.

It is a completely decentralized protocol, anyone can check the opensoource source code how the protocol works.

THORChain does not require users to do KYC or ask any personal information like email, unlike centralized exchanges that have to comply with government regulations.

🤖How does it work ?

THORChain is a layer 1 blockchain built using Cosmos SDK.

Automated market maker(AMM)

THORChain uses “constant product market maker” equation instead of order book model to provide quotes for trading assets.

THORChain has liquidity pools that consist of token pairs. RUNE is used as one of the token in token pair in every liquidity pool. This reduces the number of pools, increasing the depth of existing limited pools.

So if a user wants to swap Bitcoin for Eth, he will have to swap from Bitcoin to RUNE then RUNE to Bitcoin to complete the trade.

The product of value of RUNE(Asset A) and other token remains constant.

The trader can take a portion of asset A but he will have to supply adequate asset B so that their product remains constant.

Traders also pay liquidity fee for using the liquidity pool which is shared among the liquidity providers.

If the price of an asset gets mispriced as per the existing price of the asset in the real world: Arbitragers use the opportunity to deposit the expensive asset and take out cheaper asset rebalancing the pool.

Impairment loss: Over a period of time as traders trade with the liquidity pool, it can happen that:

  • The ratio of the two assets in the liquidity pool changes, such that there is more of one asset and less of another.
  • It is possible that the liquidity provider could have been better off holding the two assets in equal proportion, instead of the new ratio.

How does the process work ?

Following steps are involved once a user initiates a swap between two tokens on different blockchains:

  • User sends the tokens on first blockchain to a address controlled by THORChain nodes.
  • THORChain nodes monitor the incomming funds.
  • THORChain nodes send the funds from an address controlled by them on the second blockchain to the users address.

THORChain Nodes

There are around 100 to 250 nodes. Every 5000 blocks(around 3 days) the nodes are churned, removing existing nodes and randomly selectiong nodes from the standby nodes pool.

This makes the network more decentralized and avoid hostile takeover by a few nodes.

Nodes control smartcontracts that hold tokens on blockchains. Hence THORChain team has coded the protocol in sich a manner that the amount of RUNE staked by nodes is always twice the assets controlled by them.

This ensures that the pnelty for misbehaving is greater than the potential of benefit.

Users cannot delegate their tokens to nodes. This ensures that the nodes remain anonymous.

The design goal of THORChain is such that anyone can join the network with the required funds (permissionless) *and be anonymous*, yet still be secure.

Incentive pendulum

The capital on THORChain can lose its balance over time. Sometimes there will be too much capital in liquidity pools; sometimes there will be too much staked by nodes.

If there is too much capital in liquidity pools, the network is unsafe. If there is too much capital bonded by nodes, the network is inefficient.

If the network becomes unsafe, it increases rewards (block rewards and liquidity fees) for node operators and reduces rewards for liquidity providers.

If the network becomes inefficient, it boosts rewards for liquidity providers and reduces rewards for node operators.

As a by-product of the Incentive Pendulum’s aggressive re-targeting of 67:33 split of BONDED:POOLED RUNE, it means that in an equilibrium, the value of BONDED RUNE will always be double the value of POOLED RUNE.

If there is any disruption to this, then it means capital will be re-allocated by Nodes and Liquidity providers to pursue maximum yield, and thus correct the imbalance.

⚙️ How to swap assets using THORChain

🏛️ Governance model

Developers from the community submit THORChain Improvement Proposals (TIPs) to improve the network.

The community discusses, tests and validates the software. If they decide that the change is beneficial, it’s merged into the THORNode software.

When nodes are churned off the network they can choose to update their software version. Over time more and more nodes will run the latest version. When 67% of nodes are running the new software, the network is automatically updated. This is how application logic, chain connections and schema are updated.

🤑 How much money does the project have for future development ?

  • THORChain kicked off RUNE distribution through what it called an Initial DEX Offering (IDO). The sale ran on Binance DEX, a decentralized exchange launched by Binance on its blockchain network (aptly named Binance Chain). THORChain sold 7 million RUNE (out of a proposed 20 million) during the IDO at an average price of $0.032, raising $224,000 worth of BNB in the process.
  • The project also completed a Seed round and a pre-sale before launching its IDO. The Seed round distributed 60 million RUNE priced at $0.01, while the pre-sale sold 70 million tokens at a 30% max discount compared to the IDO price (which was about $0.023).
  • Team has access to around 100 million RUNE tokens to fund future development.

THORChain hacks

💰 Tokenomics

THORChain pre-minted the entire initial supply of 1 billion RUNE tokens. The project opted to distribute these assets through a few tokens sales, a reward mechanism for providing liquidity, and direct allocations to early contributors.

In Oct. 2019, THORChain opted to burn all of the “unused” reserve RUNE, which when combined with the ~15 million tokens burned through Project Surtr, amounted to 50% of the initial max supply. The supply reduction did not impact the tokens already distributed to Pre-Sale and Initial DEX Offering (IDO) investors. The allocation of the original, pre-minted RUNE supply, as well as the post-burn amounts, are as follows:

  • Service nodes: 500 million (220,447,472 RUNE post-burn) to reward network validators and liquidity contributors.
  • Operational reserves (THORChain company): 130 million (65 million post-burn) to use for Staff incentives, other sales, and liquidity bootstrapping
  • Community reserves (RUNEVault): 120 million (now 60 million)
  • Team & Advisors: 100 million (now 50 million)
    Seed investors: 60 million (now 30 million)
  • Pre-Sale (Private Sale) investors: 70 million
  • Initial DEX Offering (IDO): 7 million (of the 20 million offered in the sale, 13 million went unsold and were later burned)


These tokens will be released as follows:

Project Surtr (The RUNE burn program) THORChain introduced Project Sutr in Aug. 2019, which aims to burn any unused RUNE from the various token reserves. On the 20th of every month, the team gathers input from the community to determine whether unallocated RUNE should be burned. Our Liquid Supply Curve does not include tokens removed through the burn program, as the total burned each month is unpredictable.

Demand pressure

Token’s price increases due to demand pressure.

Demand pressure on RUNE will come from:

  • Governance: Users will acquire RUNE tokens to participate in the governance process.
  • Transaction fees: Users will acquire and pay RUNE tokens to include their transactions in Algorand blockchain.
  • Staking: Users will also acquire RUNE tokens to participate in the process of block validation.
  • Liquidity pools: All the liquidity pools are paired with RUNE as the second asset. Users will acquire and supply RUNE tokens to liquidity pools to earn liquidity rewards.
  • Speculators: They will acquire RUNE tokens for future price appreciation.

Market opportunity

Value of RUNE is clearly tied to the growth of the protocol. The price of RUNE is deterministic — since the network requires it to be bonded 2:1 by node operators, and paired 1:1 with pooled assets by liquidity providers, the market cap of RUNE is at least 3x TVL of non-RUNE assets.

🧐 Indicators to watch out for

  • Total value locked in liquidity pools is growing:
  • Daily volume of transactions is growing:
  • Twitter following is growing:

👋Final remarks

RUNE has real value directly tied to the THORChain network. Its value is deterministic. Unlike many tokens in the cryptocurrency world, RUNE plays an integral part in the security and operation of the protocol. Tokens like YFI, UNI, and many others, have no intrinsic value outside the promise of ‘governance’ (being able to vote on changes to a protocol).

RUNE is the base asset pair for all pools, so a 1:1 ratio of RUNE:ASSET is required for staking. A pool with $100,000 in BTC will require $100,000 worth of RUNE.

In addition, in order to provide network security, THORChain requires twice as many RUNE to be bonded by network operators as there is RUNE staked.

This 2:1 bond:stake ratio, combined with the 1:1 pool stake ratio, means that the amount of RUNE needed in the network is three times the amount of the non-RUNE assets locked.

If $1,000,000 worth of tokens are staked in THORChain, the market cap of RUNE will be at least $3,000,000. And like any token, stock, or asset in the world of finance, speculation around future value encourages additional upward price pressure. The 3:1 ratio is just the minimum value of RUNE.

There is currently around $1,000,000,000 worth of Bitcoin wrapped as wBTC on Ethereum, and that number is quickly growing. Why? Because with the rise of DeFi, token holders do not want their assets to sit idly by in cold storage when they could be staking, farming, or providing liquidity in order to generate yield on their assets.

Native Bitcoin doesn’t have any DeFi applications, so holders are flocking to Ethereum in order to allow their assets to be productive.

But many, many Bitcoin holders are old school, and are adverse to the idea of wrapping their tokens on another chain or interacting with Ethereum at all.

There is $200 Billion worth of BTC doing nothing. With THORChain, Bitcoin holders can stake their native BTC. This has not been possible before THORChain, and represents billions of dollars of TVL that can enter the network.

The same is true for assets on any other chain — which also represent many more billions of potential TVL, and this is why THORChain represents a breakthrough in decentralized exchanges.

Bilding THORChain decentralized exchange protocol opens up unlimited avenues for future. The team can implement existing models of MakerDao, Aave, Compound etc but on interblockchain to explore possibilities:

  • Lending and borrowing
  • Synthetics
  • Leverage trading
  • Stablecoins etc