What Makes THORChain ($RUNE) So Special?

A data-driven research on Thorchain, the very first cross-chain decentralized liquidity network that enables native token swaps.

What Makes THORChain ($RUNE) So Special?

Investment Disclaimer:

  • I am not a registered investment, legal, or tax adviser or a broker/dealer, and all opinions expressed by me are from my research for educational purposes only.
  • Past performance presented here is not an indicator of future performance.
  • This post expresses my own opinion about the cryptocurrency mentioned herein and is not an offer to buy or sell, or a solicitation of any offer to buy or sell the cryptocurrency mentioned in this post.
  • I do hold a long position in RUNE as a token holder.

1. Introduction to Thorchain



1.1. What is Thorchain ?


Thorchain aims to decentralize cross-chain cryptocurrency liquidity via a network of public THORNodes and ecosystem products. Thorchain is a decentralized liquidity network by design, which enables much more than just swaps -- synthetics, composites and self-paying loans. Access to its native and cross-chain liquidity is open to any person, product or institution.

1.2. What is $RUNE Token ?

RUNE is the asset which powers the THORChain ecosystem and provides the economic incentives for THORNodes validators in order to secure the network economically. THORNodes validators are rewarded with RUNE tokens for validating transactions that are happening on THORChain.

THORNodes validators have to bond their own $RUNE capital to make is safe for Liquidity Providers to pool their assets in the THORChain network. For the network to operate in the optimal state of security, for each unit of pooled capital there are two units of bonded capital. For instance, if RUNE-BTC liquidity providers provided $1M worth of $RUNE and another $1M worth of $BTC onto the THORChain network, THORNodes validators would have to bond $2M worth of $RUNE by design.

If THORNodes validators steal from their own vault, the mechanism is designed to slash 1.5X the amount stolen from their bonded tokens. They would end up losing more than they gained, which makes zero economic sense for them to steal.

1.3. Incentive Pendulum of $RUNE Reward Mechanism

https://docs.thorchain.org/network/incentive-pendulum

While the bonded capital is 100% RUNE, the pooled capital in liquidity pool (LP) is 50% RUNE and 50% connected assets. Diving deeper into this math 66.7% is bonded and 33.3% is pooled. That puts a tremendous economic pressure on node operators, who are expected to bond 66.7% of the RUNE TVL.

However, the capital on THORChain can lose its balance over time.

  • When capital provided to LP > capital bonded by nodes => Unsafe for Thorchain Network
https://docs.thorchain.org/network/incentive-pendulum

In this circumstance, Thorchain's Incentive Pendulum would increase rewards for node operators and reduce rewards for liquidity providers, this would then decrease the capital provided to LP due to decreasing rewards while increase the RUNE tokens bonded to the nodes as the reward for node validators increases, bringing the $RUNE capital on Thorchain back to balanced state.

  • When capital provided to LP < capital bonded by nodes => Inefficient for node validators

In this circumstance, Thorchain's Incentive Pendulum would decrease rewards for node operators and increase rewards for liquidity providers, this would then increase the capital provided to LP due to higher rewards while decrease the RUNE tokens bonded to the nodes as the reward for node validators decreases, bringing the $RUNE capital on Thorchain back to balanced state.

1.4. Token Distributions of RUNE

There are a maximum of 500M RUNE. All 100% was created at genesis and distributed via different mechanisms:

A. In return for capital:
- 5% (SEED)  
- 16% (IDO)
was sold for capital to start the network and give it value. They took on risk to support the network.

B. In return for time and effort:
- 10% was allocated to a group of devs who worked since 2018. They took on risk to deliver the network.

C. In return for bootstrap participation:
- 24% was given to users who participated in the bootstrapping of the network.

D. In return for through-life participation:
- 44% has been placed in the Protocol to pay out to Nodes and LPs for the next 10+ years

1.5. RUNE has Deterministic Valuation

If over 80% of circulating RUNE gets locked into THORChain liquidity pools, by economic design RUNE's market cap should be a minimum 3X the value of all non-RUNE assets locked into THORChain liquidity pools.

1.6. What Makes Thorchain So Special

  • Thorchain is the very first cross-chain DEX that enables the swaps of different layer-1 native assets

    We have previously covered Osmosis Zone, another cross-chain DEX that is built on Cosmos SDK. Although Thorchain and Osmosis are both pioneers in cross-chain DEX, Thorchain enables cross-chain Layer 1 (L1) token swaps while Osmosis so far only enables cross-chain token swaps between blockchains that have built using Cosmos SDK module.

    In another word, you could swap your BTC on Bitcoin Network with THORSwap for an equivalent value of ETH on Ethereum Network. Since BTC and ETH are not Cosmos-native tokens, hence, this kind of cross-chain L1 swap could not happen on Osmosis Zone yet. However, do note that Osmosis Zone is planning to incorporate features like this too, but it could take a while before it happens.

    At the time of writing, THORSwap supports the cross-chain exchange of BTC, ETH, LTC, DOGE, BNB and BCH native tokens.
  • Thorchain is also the first AMM that guarantees no impermanent loss to Liquidity Providers via their 100-day impermanent loss protection scheme

    Impermanent loss is one of the major problems faced by liquidity providers in all Automated Market Makers (AMM) at the moment. The topics of impermanent loss and AMM are beyond the explanation of this article, but if you are interested to get the deep dive of it, there is a well-explained video by Finematics as follow:

Should the impermanent loss suffered by LP providers greater than the rewards they earned from swap fees, Thorchain would reimburse the differences. This would mean that the worst outcome for Thorchain liquidity providers is to not making any profit, whereas the worst outcome for liquidity providers for other AMM is to suffer net impermanent loss.

This protection scheme may pull the interests of liquidity providers from other AMM to migrate their liquidity to Thorchain, and should the liquidity increases as the result of this, the value of RUNE token would increase proportionally over time keeping other risk factors constant.

In order to prevent rug pulls and incentivize long-term LP holdings, the impermanent loss protection scheme would be vested linearly by 1% every day, and after 100 days, a 100% protection would be fully vested and guaranteed.

  • Newly-launched THORSynths allows users to hold synthetic derivatives of native L1 tokens which come with no impermanent loss, low gas fees and instant settlement

    With THORSynths, users could now freely mint, redeem and swap synthetic assets which price is always maintained at 1:1 ratio with its respective L1 native tokens. Synthetic assets would help a lot in increasing the usage and adoption of Thorchain, as before THORSynths, users have to pay relatively high transaction fees/ gas fees on both L1 chains during every swap.

    For example, before the advent of THORSynthcs, if you were to swap BTC to ETH, then ETH to DOGE on THORSwap, you would have to pay the transaction fees on BTC, ETH and DOGE mainnets during the process, which could be very costly.

    However, with THORSynthcs, you could first convert BTC to sBTC (synthetic BTC) by paying BTC transaction fees, swap sBTC for sETH with close-to-zero gas fees, and do another swap again from sETH to sDOGE with negligent gas fees. With the sDOGE, you could redeem sDOGE for native DOGE by paying DOGE transaction fees. Effectively, you would just need to pay the transaction fees on BTC and DOGE by swapping BTC to ETH, then ETH to DOGE this way.

    This mechanism is a very great news for high-frequency arbitrage traders where L1 native arbitrages could be conducted with low transaction fees.
  • Thorchain would onboard cross-chain DeFi tools via its ThorFi initiatives

1.7. Precaution on Thorchain

Thorchain was hacked 3 times in a month last year, where the hackers claimed that Thorchain was growing too fast to the extent that it has neglected some important security principles.

News:
https://stockhead.com.au/cryptocurrency/thorchain-hacked-for-third-time-in-a-month-with-a11m-stolen/

Fortunately, Thorchain devs dealt with this issue seriously and since then, concluded 2 security audits by Trail of Bits and Halborn to increase the security of its network.


2. How Thorchain Performs Relative to Other Cryptos ?


Performance of All DEX Cryptos Under Quantdoge’s Watchlist since 2021 (Sorted by % Return from Highest to Lowest)

RUNE has undergone 463.44% return from  $1.2945 to  $7.2937 since 01 Jan 2021.

RUNE is the third best performing crypto assets among others here.

Market Cap Growth of All DEX Cryptos Under Quantdoge’s Watchlist since 2021 (Sorted by % Growth from Highest to Lowest)


RUNE's market cap has increased 673.22% from $282.96M to $2.19B  since 01 Jan 2021.

RUNE is the 6th best performing crypto assets by market cap growth among others here.

Although RUNE ranks 3rd in price performance, its market cap growth still lagged behind Trader Joe ($JOE on Avalanche), Osmosis ($OSMO on Cosmos Network), Raydium ($RAY on Solana), Pancake Swap ($CAKE on Binance Smart Chain) and Perpetual Protocol ($PERP on Different Blockchains).

This shows that Thorchain has not overgrown its potential yet and there is still plenty of space for its price to rise further if it were to overtake Raydium, Pancake Swap and Perpetual Protocol to take the third top spot in terms of market cap growth.


3. Price and Volume Analysis of RUNE Token

RUNE is always having a thinly traded volume, and with this thinly traded volume, technical analysis would not be useful. However, after 25 Feb 2022, the daily active trading volume of RUNE increased significantly by 5x to 10x, where most of them are buy volumes as Thorchain announced the launch of THORSync and its THORFi plan.


4. Risk Profile of RUNE Token

According to Investopedia, Value-at-Risk is defined as:

A  statistic that quantifies the extent of possible financial losses within a firm, portfolio, or position over a specific time frame. This metric is most commonly used by investment and commercial banks to determine the extent and probabilities of potential losses in their institutional portfolios.

Based on the 100-day 95% historical Value-at-Risk (VaR) profile of Thorchain defined above, RUNE seems to trade at a lower risk level on 15 Mar 2022 as compared to 10 days before on 05 Mar 2022, with its biggest pullback being seen at -16.88% on a single day during the last 100 days. However, I could be wrong, hence please make your careful due diligence before making any financial decision.

Probability distribution chart of RUNE's daily return based on its past 100 days of historical price data shows that RUNE has now a higher probability of swinging up more than 20% as compared to 10 days ago, while its probability of losing more than 20% decreases. A good sign that RUNE's downside risk has decreased.


5. RUNE Community Analytics



Number of RUNE Followers In The Past 24 Months

During the past 24 months, Thorchain followers have grown 1914.63 % from 7,377 to 148,619 on Twitter and grown 542.77 % from 1,555 to 9,995 on Reddit.

Number of RUNE Followers In The Last 30 Days

In the last 30 days alone, Thorchain followers have grown 5.4 % from 141,010 to 148,619 on Twitter and grown 4.32 % from 9,573 to 9,987 on Reddit.

Daily increment of Thorchain Twitter followers peaked on 16 Mar 2022 and its daily increment of Reddit followers peaked on 15 Mar 2022.

Over the past 30 days, Thorchain managed to attract 159 new Twitter followers and 14 new Reddit subscribrs every day on average.


Thorchain reached its peak in Google Search on 2021-04-11 with a Google Score of 100.

Over the last quarter, Thorchain Google Score has increased 147.13 % from 17.4 to 43.0.

Over the last 6 months, Thorchain Google Score has increased 27.22 % from 33.8 to 43.0.

Thorchain has increased in popularity over time.

Most searches and interests of Throchain were coming from Singapore (Asia crypto hub that houses many crypto startups, crypto hedge funds and crypto VC) this month.

This is quite bullish for Thorchain project as it gains popularity in major financial center and crypto hub.


7. Binance Futures Activities

Based on the futures data pulled from Binance Futures, there are more short RUNEUSDT traders than long RUNEUSDT traders from 11 Mar to 15 Mar, however, since the announcement of THORFi plan and THORSync launch, number of traders who long RUNEUSDT are increasing significantly. Please note that this analysis does not take in volume into account, just comparison between the number of long traders vs the number of short traders.

Although there are mort short RUNEUSDT traders than their long counterparts, there is a net positive buying volume for the past 7 days, a total of 18.8M net buying volumes pushing the mark price of RUNEUSDT up from $5.35 to $7.97 (a close to 50% increase within a short week!)

If you like my analysis and article, please consider to subscribe to my newsletter for weekly updates and analysis like this being sent to your inbox.

Connect with me at:

linktr.ee/quantdoge


Subscribe to Quantdoge Publications

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.
jamie@example.com
Subscribe