What is Thorchain RUNE?

The THORChain protocol is a decentralized, multi-chain supported liquidity protocol focused on offering secure exchange services. All this is made possible by using the Cosmos SDK technology, which makes it part of the Cosmos ecosystem.

THORChain offers great processing speed thanks to the use of the Tendermint protocol. In addition, it offers great security thanks to the use of the Threshold Signature Schemes (TSS) cryptographic protocol. This cryptographic signature scheme serves to secure the funds that are mobilized in your network. In this way, THORChain has become a liquidity hub capable of connecting various blockchains. At the moment, the network is capable of working with Bitcoin, Bitcoin Cash, Ethereum, Dogecoin, Ethereun, BNB Chain and Litecoin.

Origin of THORChain

THORChain began its development in 2018 as a decentralized free software project with no management hierarchy in its development. This means that there are no CEOs, no presidents, and no figure of absolute authority in the development of the project, since it advances through continuous improvement planned at the community level.

Thus, for example, developers can submit improvements or fix bugs, which are reviewed, discussed and approved by a general consensus. It is possible to observe this operation in its official gitlab repository, from which you can access all the project code. All this makes THORChain an open, community and high-quality project.

Now, the creation of THORChain seeks to respond to a very clear need: to create a secure asset exchange mechanism that will not go through the CEX (so as not to centralize the assets) or the current DEX (with increasingly higher commissions due to the low scalability of the networks where they were implemented). In this sense, the development team turned its attention to Cosmos, a blockchain technology that was under construction and that was emerging as a means to overcome all these problems. However, Cosmos was under construction at the time, so THORChain would only become a reality once the network was up and running.

Thus, in July 2019, the project began to take its first steps on-chain, with the creation of RUNEVault. With this, the project created a staking mechanism that would serve as a bootstrap for the creation of the THORChain network. The system was launched on the Binance Chain, so the RUNE token at that time was a BEP-20 token. During this stage, the team was able to create the foundations for

1. The keystore file connection
2. Ledger and Wallet Connect integration
3. Binance Chain integration in the browser
4. Betting information needs
5. General Network Accessibility

Later on June 8, 2020, THORChain publicly launched its testnet. During this launch, small rewards were delivered to users who interact the most with the protocol, had activity as bug hunters or issue solvers in GitLab, or those who design solutions to use THORChain.

By April 13, 2021, a new milestone reached the network with the launch of the MultiChain ChaosNet (MCCN). With this launch, an incentive liquidity support between chains began to be offered. Thus began the ability to exchange assets between chains in an environment without permissions, without trust, without custody, and without fixed or representative assets.

Finally, on June 22, 2022, THORChain reached its most recent milestone, the launch of its Mainnet. This accompanied the launch of its native RUNE token and a series of unique features for this network.

How does ThorChain work?

THORChain is an independent blockchain that works thanks to Cosmos technology, and on which a powerful cross-chain DEX is executed, capable of carrying out exchange operations quickly and safely. Among its main characteristics we can mention:

1. The ability to exchange Layer 1, or native, assets across multiple chains – for example, native BTC to ETH exchange.
2. No user registration required – just submit a transaction and THORChain will execute it.
3. No assets involved – all assets are natively insured.
4. Transparent and fair prices, without depending on centralized third parties.
5. Continuous liquidity pools that maximize the efficiency of the protocol

These characteristics make THORChain a unique protocol in its style, because it tries to depend as little as possible on complex solutions (such as wrapped tokens) and facilitates cross-chain exchanges. This is possible because everything on THORChain is done natively. Let's look at an example:

When trading BTC to ETH, the user sends BTC to THORChain and the ETH is sent from one of THORChain's vaults (a THORChain Vault). Internally, once the BTC is received, RUNE moves from the BTC pool to the ETH pool – thus it is a double exchange (BTC:RUNE, RUNE:ETH). Thus, the entry fee is paid in BTC, while the exit fee is paid in ETH.

THORChain Vaults, keeping tokens safe

The operating scheme of the THORChain DEX is a bit different from what we see in other DEXes. First of all, we have two types of vaults:

1. Asgard TSS Vaults, are the gateway vaults with large committees (27 of 40) accepting trades. They are in charge of receiving the assets that will be exchanged.
2. Yggdrasil vaults, are the output vaults with a 1 of 1 scheme, and are responsible for outputting assets from the system.

Creating this pair of vaults allows the protocol to maintain asset security in a separate access scheme to keep assets separate and delegated to them.

In the first case, the Asgard vault ensures that the entry of money into the system is recognized by the entire network. To do this, the process requires a TSS (Threshold Signature Schemes) signature system, in which 27 participants sign the operation to recognize it.

For its part, the Yggdrasil vault can do approximately 1 transaction per vault per second, so the system can do about 300.000 output operations per hour (based on the current network of about 100 active nodes). This ensures that the system is scalable enough to serve all of its users quickly and expeditiously. Additionally, these vaults have a security system in which, if a node has a bonus of 4 million dollars, then up to 1 million dollars in assets would reach their vault (25% of the amount of the bonus). Thus, the system makes sure that the funds are well protected and backed up.

Bifröst Protocol, security within the system

The Bifröst protocol is one of the cornerstones of THORChain. This protocol is responsible for multi-chain connectivity by building a bridge between blockchains. Chain bridges address one of the most pressing issues in the decentralized community: interoperability.

This protocol is in charge of adding multisig security, maintaining the network's Proof of Stake (PoS) scheme, and managing the protocol's liquidity pools. It is also the interoperable bridge that enables compatibility with nearly all major account-based asset and unspent transaction (UXTO) products, including code-forks and tokens. In a nutshell, Bifröst is the bridge that holds the entire THORChain ecosystem together, allowing seamless trading of any digital asset via any distributed ledger.

Bifröst, can be summarized as:

1. A multisg system that handles the security mechanism that enforces an authentication scheme, whereby M of N, N of N, or N-1 of N signatures are needed to spend digital assets. Signatures are delegated to a disparate, predetermined set of counterparties that hold their own private keys.
2. Proof of Stake (PoS) is the validation and consensus system used by the network.
3. Continuous Liquidity Pool (CLP), is the name by which liquidity is handled within the THORChain. The system incentivizes any THORChain participant to supply liquidity in exchange for commissions. This means that traders will trade assets directly with the protocol, ensuring continuous liquidity. Since the protocol also keeps track of the relationship between RUNE (the THORChain protocol token) and the asset in the CLP, they also inherit a trustless on-chain price feed for digital assets.

RUNE, the native token of the network

RUNE is the token name of the THORChain network. Initially the token was built as a BEP-20 type token, for the BNB Chain. However, the token currently already runs as a native token on its own chain.

The token initially had a maximum supply of 1.000 billion when the tokens were first created in June 2019. However, the current scheme has changed to one of progressive token burning for all of RUNE's "unused" reserve, in what is known as Project Surtr. The measure led to the maximum issue of RUNE being reduced to 50%, that is, 500 million RUNE.

This did not affect the tokens already distributed to investors from the DEX Presale and Initial Offering (IDO), which was allocated as follows:

1. Service nodes and liquidity incentives: 220.447.472 RUNE (initially 500 million)
2. Operating reserves (THORChain company): 65 million RUNE (initially 130 million).
3. Community reserves (RUNEVault): 60 million (initially 120 million) issued over 2,5 years.
4. Team and advisors: 50 million (initially 100 million), which are locked until the launch of the mainnet.
5. Initial investors: 30 million (initially 60 million), of which four million are distributed immediately. The rest of the tokens will remain locked until the mainnet launch, and then will be released in batches of 20% every three months.
6. Pre-sale investors (private sale): 70 million. 50% of this pool is unlocked at the time of distribution to provide sufficient liquidity on Binance DEX. The other half is unlocked one week after the THORChain (IDO) initial DEX offering closes.
7. Initial DEX Offering (IDO): 20 million, of which 13 million were not sold and were subsequently burned, which came with no vesting schedule.
8. Of the rest, the issuance of RUNE occurs through RUNEVault, through which two million RUNE tokens are issued each month. as part of their gambling rewards program. This issuance will continue until Community reserves are exhausted (60 million tokens in total), which would allow the RUNEVault program to function for about 2,5 years after its launch.

Conclusions

THORChain is an interesting proposal for carrying out secure and fast exchanges between native tokens. In fact, using native cross-chain transfers gets you closer to well-known atomic swaps than any other DEX out there on Etheruem, Polygon, Solana and other networks. This makes it perfect if you want to make secure exchanges from one native token to another, without going through intermediaries and with much lower commissions.