When you have an asset in blockchain A (Token A), you want to use token A to transact on blockchain B (Token B). Then the question is how can you be active while the two blockchains are not compatible with each other. At this point, Cross-chain was born, opening a new page for DEFI.
Is There A Market Needs?
Cross-chain is a solution that helps to transfer crypto assets, tokens or data from one blockchain to another, to optimize interoperability between blockchains. For example, this is similar to the fact that Hong Kong people can’t use USD to transact in their country and Americans can’t use HKD to pay in the US. At this point, what you need to do is find a bank to change into an intermediary currency compatible with both countries.
The problem seems simple as follows: you want to use BTC on the Ethereum chain, so you need to swap BTC to WBTC for example via wbtc.network, but the problem is that you will have to deposit BTC into a 3rd party. If the 3rd party gets hacked or the 3rd party behaves badly. Your deposit will be in jeopardy. At this time, a new solution was born to help cross-chain solve this problem.
Cross-chain has used AMM – no 3rd party only Token A+ Token B+ Price (varies on the ratio of the number of tokens in the pool). That is why AMM is more suitable than the third party above. Because no one has control over the assets in the pool.
THORChain is also a chain that helps solve similar problems.
What Is THORChain (RUNE)?
THORChain is an independent blockchain constructed with the Cosmos SDK that will act as a decentralized cross-chain trade (DEX). It employs an automated market maker (AMM) approach similar to the early versions of Bancor (BNT) and Uniswap, with THORChain’s native token (RUNE) serving as the basic swap pair. It does not peg or wrap assets, it simply determines how to move them in response to user actions. This model allows traders to move between different asset pools using RUNE as a somewhat hidden intermediary. It also pays a percentage of trading costs to liquidity providers (LPs), who deposit or “stake” assets on either side of a liquidity pool.
It uses an AMM model to facilitate crypto asset swaps an independent crypto network that aims to enable the exchange of assets across disparate blockchain networks in a non-custodial manner. Its protocol features a cross-chain bridge system (known as the Bifröst Protocol) to connect different chains.
What is the project trying to achieve?
As the number of users on blockchain networks grows, the need for cross-network liquidity likewise increases. Thorchain is a protocol that aims to meet this need by enabling the trading of crypto assets across various blockchains in a completely decentralized way without a third party ever taking control of the funds.
Across multiple blockchains without wrapped/pegged assets & without a centralized counterparty. Trade directly from your own wallet non-custodial.
The ability to swap Layer 1, or native, assets across multiple chains – e.g. native BTC to ETH swap.
No user registration required – simply send a transaction and THORChain will execute it.
No wrapped assets – all assets are natively secured.
Transparent, fair prices, without relying on centralised third parties.
Continuous Liquidity Pools that maximise the efficiency of the protocol
What is the unique selling point?
THORChain uses a series of core technologies to ensure the network functions as designed:
Continuous Liquidity Pools (CLPs)
Tendermint THORChain is a Tendermint-based chain, which is the same architecture and consensus system first used by the Cosmos network. Therefore, like Cosmos, THORChain caps the number of validators (100 to start) in order to reach finality for each proposed block. It also supports a Proof-of-Stake consensus mechanism since Tendmint requires each Validator to have a weight on the network determined by the stake they hold.
Continuous Liquidity Pools (CLPs) this system incentivizes participants to supply liquidity in exchange for fees and RUNE rewards. Traders can then access and exchange with these token pools directly, which gives CLPs an ongoing supply of liquidity. The protocol also tracks the ratio of RUNE to the asset held in each CLP, which creates an inherent on-chain price feed for individual assets.
Bifröst Protocol The Bifröst Protocol is THORChain’s cross-chain bridging system. The protocol leverages THORChain’s Proof-of-Stake (PoS) validator set, the on-chain price feeds generated by CLPs, and multi-signature (multi-sig) accounts to create and secure these bridges. Every bridge uses validating parties to verify transactions. But the multi-sig system randomly assigns validators to each transaction to limit centralization concerns. Each bridge is customizable, where the end-user determines the number of parties required to sign off on a transaction (a three-of-four multi-sig arrangement is less secure but faster than a 20-of-21 schema).
Yggdrasil Protocol The Yggdrasil Protocol is a sharding mechanism designed to help scale THORChain. Unlike more traditional sharding applications, which split items into horizontal components, the Yggdrasil Protocol uses a vertical sharding technique on entire chains. The team says this technique allows THORChain to apply sharding to cross-chain ecosystems, as opposed to sharding an existing chain.
How Does Swap Work?
Swaps in THORChain use native assets. Example: When a swap from RUNE to BTC occurs, RUNE is sent into THORChain from the user and BTC is sent out from one of THORChain’s vaults – Inbound gas is paid in Native RUNE, Outbound Fee is paid in BTC. When Swapping from BTC to ETH, BTC is sent into THORChain from the user and ETH is sent out from one of THORChain’s vaults. Internally, once the BTC is received, RUNE moves from the BTC pool to the ETH Pool – thus it is a double swap (BTC: RUNE, RUNE: ETH). Inbound gas is paid in BTC, Outbound Fee is paid in ETH.
Users can swap any assets which are on connected chains and which have been added to the network. Users can swap from any connected asset to any other connected asset. They can also swap from any connected asset to RUNE
To add an asset to THORChain, users simply deposit a new asset to put it in the queue for listing. Swaps can only be made on pools when they have been added to the network and have moved out of the bootstrap phase.
THORChain manages the swaps in accordance with the rules of the state machine – which is completely autonomous. Every swap that it observes is finalised, ordered and processed. Invalid swaps are refunded, valid swaps are ordered in a transparent way that is resistant to front-running. Validators can not influence the order of trades and are punished if they fail to observe a valid swap. Swaps are completed as fast as they can be confirmed, which is around 5-10 seconds.
Continuous Liquidity Pools
Swaps on THORChain are made possible by liquidity pools. These are pools of assets deposited by Liquidity providers, where each pool consists of 1 connected asset, for example, Bitcoin, and THORChain’s own asset, RUNE. They’re called Continuous Liquidity Pools because RUNE, being in each pool, links all pools together in a single, continuous liquidity network. When a user swaps 2 connected assets on THORChain, they swap between two pools:
Swap to RUNE in the first pool,
Move that RUNE into the second pool,
Swap to the desired asset in the second pool with the RUNE from (2).
THORChain project roadmap:
More chains (LUNA, Privacy, L2’s)
More wallets (all the big ones)
More integrations (Dex aggregators)
More Features: Synths, THORFi (lending, saving), THORNames