THORChain: A Cross-Chain DeFi Platform
THORChain is the perfect play on the need for cross-chain DeFi capabilities using native coins.
And the tokenomics put direct value accrual to the token RUNE as TVL & volume grow.
This post will be a high level overview of what THORChain is and why it has the ability to be top crypto asset
First, the high level overview and tokenomics
And second, further capabilities additions of the chain, market share capture, and ultimately RUNE value accrual
Overview
THORChain is the primary decentralized cross-chain liquidity network
It allows for native to native swaps. No need for a wrapper or bridge. BTC to ETH, not wBTC to ETH
No bridge = higher security
The protocol centers the RUNE coin into all swaps
Transactions look like the following: BTC <> RUNE <> ETH
This results in high liquidity / low slippage by not having fragmented liquidity pools
Liquidity begets liquidity
Tokenomics
The tokenomics place RUNE in perfect alignment with the success of the protocol It is the base asset of THOR
Each LP is 50% RUNE
Node operators bond RUNE equal to the TVL
For every $1 of non-RUNE TVL, $3 of RUNE is needed
Effectively, RUNE mkt cap is proportional to TVL by a 1.5x minimum factor
Value Proposition & Roadmap
The current factor is 7.5x with a TVL of $470mm
Such a huge speculative premium that is pricing in huge TVL growth.
Assuming it will take 5 years to reach a mature state where market cap is 1.5x TVL, we can estimate the expected growth
This is a basic analysis that ignores two things:
Most RUNE holders LP their coin with another pair. The current LP yield is ~11% for BTC-RUNE and ETH-RUNE LPs
There should be an expected terminal growth rate so the TVL factor should always be above the minimum assuming perpetual positive growth
Let’s assume the following cost of capital (CoC), terminal growth and LP Yield. Running this analysis, we see that the terminal factor is slightly above 1.5x at 1.6x.
This implied a growth rate of 36% instead of 38%. Ok still really high.
Let’s also point out there are some issues with this analysis:
Investors in the LP are 50/50 exposed to two assets, not just RUNE so the Cost of Capital assumptions differ by LP
TVL and trading volume are a chicken and the egg. Liquidity begets liquidity. As TVL grows, the yield falls but it also encourages more volume. More volume increases the yield and encourages more TVL
But really the question is why price in so much growth?
DEX Volume Growth
For starters, DEX volume growth DEXs are capturing CEX volume market share
Native-to-Native Swap Volume
And related to RUNE, 43% of all CEX volume is cross-chain (source:
Est. cross-chain daily volume on Binance = $12bn ( 43% of $27bn 24hr volume)
THORChain had ~$117mm 24hr volume and has the ability to capture market share from CEX volumes
Roadmap
Further, there are huge developments that just launched or are coming soon that will bring in huge amounts of TVL
Let's dig into that
Terra Integration
Integrating LUNA and UST LPs
In two weeks since launch, Terra TVL has reached ~$50mm
Synthetics
This gives the ability for LPs to collateralize their position, creating a derivative asset of any token or group of tokens
It launched this month & already $33mm 24hr volume
Synthetics are a super exciting development with THOR.
Capabilities include:
Borrowing & Lending - Collateralize LP positions
Single-sided staking earning yield without IL
Composite assets - Sort of a decentralized ETF w/ native crypto assets
Futures & Options
Each of these adds even more liquidity to the chain
And imagine being able to single-side stake BTC to earn yield with no risk of impermanent loss
Aggregator
In development is an aggregator that will allow for existing AMMs to add cross-chain capabilities using Thor LPs in the background
The ability to use Thorchain as the base AMM for trading any token on any L1
Imagine swapping UNI for native BTC or UST with the best liquidity and slippage
Or even going from L1 to L2 without a bridge Any AMM can become a one stop shop
Other big things in the roadmap
IBC Composability
Fixed stable yields on any asset
L2 integration
ThorUSD - algo stable applying Terra burn mechanism via burning RUNE
Conclusion
All this increases utility & capabilities of Thorchain
And RUNE is the base trading asset for all of it
Volume is continuing to grow as these capabilities are built out
And further, THOR still has only captured a small % of native-to-native swaps
Thorchain is building itself into the ultimate DeFi protocol for a multichain world that desperately needs cross-chain DeFi capabilities, low slippage, and high liquidity
And the protocol design results in direct value accrual to RUNE as the protocol utilization grows
Resources
Great follows for more $RUNE content
And an epic piece from @_FabianHD for more details on @THORChain and how to value $RUNE