Multicoin Capital: Analysis and Evaluation of THORChain
report summary
report summaryTHORChainnative tokenRUNEMulticoin Capital holds a large
native token
position, THORChain is a decentralized cross-chain automatic market maker (AMM). Meanwhile, RUNE is one of our largest open positions.
We believe that THORChain - a cross-chain that trades spot tokens (not just derivatives) with minimal trust - is a fundamental piece of crypto trading infrastructure. With the continuous development and diversification of the encryption ecology, THORChain will play an increasingly important role in it.Therefore, there is a huge opportunity for a product that minimizes trust and supports cross-chain transactions. In a world where multiple chains coexist and tokens are flooding, traders naturally have the need to conduct cross-chain transactions in a way that minimizes trust.In the field of cross-chain transactions, the first such product is. Since then, there have been successive appearances in the market such as、relaySimple Payment VerificationrelayAnd merge consensus and other ways. However, despite the good intentions, due to various reasons (such as the transaction speed is too slow,
free choice problemCoinGecko, cost is too high, etc.), none of them have succeeded in gaining widespread attention in the market.
Since the first cross-chain exchange product appeared a few years ago, the crypto ecosystem has become more and more diverse:
As new smart contract platforms such as Solana, Polkadot, Near, and Avalanche mature, the number of blockchains continues to increase. After these ecology matures, the overall encryption technology composition will become more diverse, rather than more homogeneous.
Most investors hold positions in their favorite blockchains; however, few of them have real exposure to the growing diversity of the ecosystem as a whole. This is a huge opportunity, and we believe that holding THORChain's native token RUNE is the best way to practice this investment philosophy.
THORChainsecondary title
THORChain overview https://multicoin.capital/2017/12/14/ AuthorThe problems of centralized exchanges are raised:Counterparty risk: In the centralized exchange model, users need to recharge encrypted assets to the exchange first. After the assets arrive in the account, the exchange registers the record in the internal ledger. Centralized exchanges maintain this private, internal ledger. However, there have been quite a few shocking exchanges in the industry that have beenInsufficient reservesgoing bankruptfront running。 ; some other exchanges are suspected of manipulating the market, before the customer's order is filled Speed: In order to minimize counterparty risk, users usually withdraw cash after the transaction is completed. This is a very cumbersome and slow process. If you encounter the withdrawal limit of the exchange, it will be even worse.South KoreaRegulatory risk: Although a centralized exchange serves global users, it itself needs to comply with local regulations. Local governments can force exchanges to delist a token (for example, Coinbase, Kraken, and Gemini recently delisted XRP). Regulators may also suspend an exchange and seize its assets (in South Korea , this problem is particularly serious). Risk of theft: Exchanges are the world's largest holders of cryptocurrencies, so they are prime targets for hackers. A powerful side effect of THORChain is that the protocol team can develop on any blockchain that integrates THORChain, and easily start the liquidity of other encrypted ecosystems. For example, most teams currently choose to develop projects on Ethereum, one of the main reasons is that they can easily issue a token on SushiSwap or Uniswap, and at the same time obtain liquidity immediately. If a protocol development team decides that Polkadot or Solana are better suited to their specific needs (such as high throughput and low latency), they can also choose these blockchains. Through THORChain, the new protocol can make full use of the liquidity of the Ethereum ecosystem. The crypto market has not yet fully realized the value of this, and THORChain has created a playing field for different smart contract platforms. secondary titleMetaMaskMarket opportunitiesSolFlareOne of the main activities in the crypto market is trading. In cross-chain transactions, users usually need to trust the centralized exchange and use two wallets (such as Ethereum's wallet). This process is very cumbersome, such as exchanging PERP tokens on Ethereum for SRM tokens on Solana, which is a UX nightmare.announcedOne solution to this problem is synthetic transactions. we also recently announced An article on all major financial structures for trading synthetic assets. But there are many use cases where synthetic trading cannot replace spot trading. Why is spot trading so important? Because unlike stocks and bonds, many cryptocurrencies actually have real uses and have native utility value. Typically, users of a Layer 1 network use tokens to achieve some well-defined goal. To give a few examples: Synthetic XMR tokens on Ethereum cannot protect privacy. Synthesized Helium Network Tokens (HNT) cannot be used to pay for wireless data transfers. Synthetic Arweave (AR) cannot buy storage space on the Arweave network. Synthetic Siacoin (SC) or Filecoin (FIL) cannot be used to pay for data storage. Purchasing spot assets becomes even more important as new, more versatile layer-1 networks roll out. In addition to pure speculation, various tokens have embedded more functions today. secondary title THORChain Network OverviewTHORChain realizes cross-chain transactions through a network of nodes and liquidity providers (LP). The native token of the protocol, RUNE, plays three key roles: 1) Protecting network security; 2) Acting as a common pricing currency for each transaction in the system, maximizing the liquidity of all assets in the exchange; 3) Collecting fees.one-way state anchoringmulti-party computationTo connect various blockchains. THORChain node adopts advancedmulti-party computation(MPC) techniques such asdistributed key generation(DKG) and (TSS) to ensure that no THORChain node can control the user's assets. secondary title continuous liquidity pool With the advent of automated market makers (AMMs) like Uniswap, teams have been experimenting with multiple new ideas to improve the experience for buyers and sellers. THORChain has invented a new system called Continuous Liquidity Pools (CLP) - one of the most meaningful improvements to AMMs since the launch of Uniswap. Structurally, CLP is similar to Uniswap and Balancer, with one key difference: the transaction fee is a function of transaction slippage, rather than a fixed percentage fee (such as Uniswap's 30 points). A common criticism currently held against AMMs is that they provide room for arbitrageurs to exploit the AMM’s LPs. For example, if the price of ETH on all major exchanges spikes from 0.03 BTC to 0.04 BTC due to a certain news, but Uniswap still sells ETH at 0.03 BTC until arbitrageurs push the price to 0.04 BTC. If the ETH price never falls back to 0.03 BTC, then the LPs in the Uniswap asset pool will execute a buy-and-hold strategy—usually this is called impermanent loss (IL), although it is more accurate to say unrealized loss. GauntletTHORChain's CLP design alleviates this problem. If arbitrageurs push ETH-BTC from 0.03 to 0.04 in a single transaction, they have to pay higher transaction fees, which benefits LPs and reduces or even eliminates IL. The higher the slippage caused by a trade, the more the trader pays for the potential LP on that trade.Based on this, arbitrageurs may divide the transaction into multiple small orders to avoid high fees. THORChain solves this problem by prioritizing transactions with the highest transaction fees. This operation is actually implemented in the consensus protocol itself (unlike Ethereum's mining pool operators who control the order of transactions in a block). Arbitrageurs must weigh the risk that their trades will not be included while paying higher slippage fees. Since the mechanism itself is enforced in the consensus, it can ensure that THORChain LP cannot keep up with the rhythm in the event of abnormal market fluctuations. This lowers the risk floor for LPs, ensuring they provide more liquidity for natural traders.is a well-known cryptocurrency quantitative research company, it simulated Uniswap and THORChain's LP income finally verified that THORChain's LP has the opportunity to obtain higher income. Nodes must stake a minimum amount of RUNE to verify transactions and earn fees on the network. For a certain period of time, nodes cycle between "active" and "standby" states, ensuring that the operation of the nodes is as decentralized as possible. The inner workings of the network are separated from the node operators and costs are minimized when deploying upgrades or modifications to the network. secondary title When the system is out of balance, the network will adjust block rewards and network fees to incentivize node operators and LPs to restore balance—this mechanism is called " incentive pendulum Over the past month, the top five Ethereum DEXs by market share had an average daily trading volume of $2 billion (compared to $4 billion for Coinbase), and these DEXs only traded ERC-20 assets. As THORChain adds support for all major blockchains in the coming months, it has a good chance of replacing many centralized exchanges as the place of choice for trading. secondary title Development History Many people don't know that THORChain appeared earlier than many popular decentralized exchanges. It was born in the hackathon sponsored by Binance in 2018. After the hackathon, an anonymous team working on developing a decentralized exchange took over the project and continued to iterate for several months. However, project development stalled due to a lack of infrastructure and developer tools at the time. With the initial concept of a bonded/liquidity pool based system security model coming together, at the Berlin Cosmos Hackathon in June 2019, the team developed a proof of concept under the moniker "Instaswap". Launched under the name BEPSwap (DEX on Binance Chain), the product is used to trade Binance Chain assets. In July 2019, the team adopted the name THORChain and issued RUNE through Binance Chain, raising $1.5 million in the initial decentralized exchange public offering (IDO).shareSince then, THORChain has always given top priority to the transparency of development and capital operations. The team got the most out of the spirit of mass development; every week they The core team of THORChain has eight developers. The fiscal reserve, currently valued at $25 million, provides ample support. For more information on the Agreement Reserve and the Community Funding Program, you canClick hereread. Click here In August 2020, THORChain launched its first proof-of-concept network, Chaosnet, with 14 node operators. BEPSwap, the client running Chaosnet now has 74 nodes. It is dedicated to exchanging transactions between Binance Chain assets, processing about $30 million in transaction volume per day, of which about $70 million is concentrated in the liquidity pool. In January 2020, the THORChain team released the Binance Chain-Ethereum bridge, and reached a cooperation with SushiSwap to establish liquidity for ERC-20 RUNE on Ethereum. Currently, the liquid asset value of RUNE trading pairs such as ETH, ALPHA, USDT, PERP, and AAVE on SushiSwap is $26 million. secondary title THORCHAINCommunity THORChain understands the role of memes in developing a common identity for communities. When we first heard the name THORChain, we thought it was silly. But over time, the team proved it was a deliberate decision. Due to its reference to Norse mythology, it offers a wealth of character and meme content for the masses. And easy-to-relate memes can assist in the diffusion of a project's brand.THORChain ExplorerSince its release, THORChain has attracted a large number of third-party teams to develop products to help promote the development of the ecology. Some examples include: XDEFIDeveloped by Pusher Labs BEPSwap Simulator—THORChain.net is the block explorer of THORChain project. The browser offers a well-documented API, summary of network statistics and transaction history. — A browser wallet similar to MetaMask that will support blockchains connected to THORChain.— A simple tool that assists in calculating THORChain's asset pool price.THORChain Help Center。 MIDGARD API— One of the biggest challenges facing the THORChain team was to introduce the product to non-technical users in a very understandable way. Fortunately, a third-party team has developed a simpleTHORChain.netTHORChain interpreterRunestake.info—Query the public API of THORChain, the community has developed a display board on it, for example XChainJs(network activity monitoring) and The THORChain community is one of the biggest assets today. The THORChain team has done a fantastic job of cultivating the culture. Together, they embody the spirit of the decentralized web. They also have a proactively updated "planned obsolescence" date, which indicates when the core developers will transfer ownership of the codebase to the community for maintenance. Currently set for July 2022. ChainFlipsecondary title Competitive Analysis The ChainFlip team previously developed the infrastructure for Monero and launched LOKI, a privacy coin with a low-latency, anonymous network. Renand KEEPAchieving the vision outlined in their white paper, they will seamlessly connect various blockchains. However, now they mainly use Substrate (Polkadot) and Cosmos SDK based blockchains. For example, Polkaswap cannot handle spot native ETH/BTC swaps. tBTC is probably the most decentralized implementation of wrapped/fixed BTC. Currently, there are more than 1,800 tBTC on Ethereum, covering more than 1,000 addresses. The tBTC system is similar to THORChain in that they also use ECDSA threshold signatures for multi-party computations, but there are key differences in the implementation of the bonding model, signer selection, and deposit verification. upcoming big eventannouncedThe THORChain team recently announced Multi-chain test network, which supports the exchange of native BTC into ETH, LTC, BCH and BNB assets. The core team is currently actively exploring adding support for Dogecoin, Monero, Zcash, Polkadot, Haven Monero, and several other blockchains; these will be announced gradually over the next few months as the mainnet launches. In the long run, the team hopes to improve the capital efficiency of the network through leveraged trading functionality. Some examples include: Compound Assets - Compound assets such as THOR.USD or THOR.ALT are LP stock tokens of multi-asset synthetic pools that generate fees in transaction activities. secondary titlein conclusionThe THORChain team has been relentlessly executing the roadmap. They are one of the most transparent teams in the crypto space, providing ongoing updates on development progress, treasury/business reserve management, and regular development cadence to implement long-term strategies. They are also the best when it comes to communication, which helps to build and attract a strong community. The THORChain team is committed to developing its core infrastructure in an open and accessible manner, ensuring that the decentralization of THORChain is controlled by the community. Currently, the Treasury Department distributes $200,000 in monthly grants to third-party developers through community development.Market opportunities
However, there are relatively large risks in centralized exchanges. THORChain provides an elegant alternative: non-custodial, permissionless, decentralized transactions across blockchains. For users who are always looking to protect privacy and/or maintain asset custody, THORChain provides one of the most important features of an alternative to centralized exchanges (CEX).
Let's consider a simple example. THORChain nodes run DKG to generate a private key/public key pair, where the private key is virtualized and can only be recovered if 67% of the nodes collude with each other (standard BFT network security threshold). Users can send BTC to this address and then to the THORChain network, which hosts the transaction. Assets are guaranteed by RUNE's market value and liquidity and multi-party computing system. When a user requests to withdraw BTC from THORChain, THORChain nodes run multi-party calculations to sign the message, and then release the assets to the user. When THORChain nodes host BTC, users can first trade BTC-RUNE, and then exchange BTC to any other asset supported by THORChain through RUNE-[other assets]. These transactions are executed on the THORChain decentralized exchange, which is completely permissionless and free from censorship. Traders can interact with the network through simple on-chain transactions or through any web, mobile or desktop application.
Note that all system rewards (transaction fees, transfer fees, block rewards) are shared between node operators and LPs. The distribution of rewards between node operators and LPs is controlled by an incentive adjustment mechanism, more details will be explained in the next section.
And as more and more transactions pass through THORChain, RUNE will become more and more valuable. RUNE holders can obtain income from the system by staking RUNE or becoming an LP. This directly binds the value of RUNE to the trading volume and liquidity of the THORChain decentralized exchange.
All this work culminates in an upcoming major network event: the multi-chain launch. The launch will expand support for BTC, ETH, LTC, BNB, and BCH. After the official launch, traders will be able to trade ETH and BNB or any ERC-20 or Binance Chain asset into BTC, LTC or BCH and vice versa (assuming the network has sufficient liquidity) without sacrificing custody of their funds.
Competitive Analysis
Similar to Ren, Keep is pursuing the fixed asset market rather than spot trading. Multicoin Capital also invested in Keep and is very satisfied with the products they have developed (especially tBTC).
in conclusion
