Thorchain: The increase of more than four times is eye-catching, and the cross-chain veteran will reorganize the "new life"?

Produced by DODOResearch

Author: dt X Gryphsis Academy

Editor: Lisa

Compared with the vigorous development of the BTC ecosystem and the sudden explosion of the AI track, the ETH Defi project seems to be weak in this round of market rise, but there is a product that continues to work secretly, rising more than four times in the last quarter of 2023, and more than six times from the lowest point of the year.

This week, Dr.DODO and Gryphsis Academy will take you to get to know what this old Defi protocol Thorchain is and what updates have been made, and introduce to you what other noteworthy projects in the cross-chain DEX track besides Thorchain?

What is Thorchain?

Thorchain is arguably one of the oldest DeFi projects on the chain, having established a team as early as 2018 and launched its product in 2019. There have been many hacks, but with the support of its strong team and unwavering community, Thorchain has continued to deliver and become one of the top 50 blue-chip projects by market capitalization.

Thorchain’s main business is a decentralized cross-chain AMM that allows users to exchange and trade directly between different blockchain assets without trusting third-party institutions. Unlike centralized exchanges, Thorchain operates on a specially designed trustless protocol that allows users to swap assets across chains without frictionless losses by simply depositing their trading funds into a liquidity pool. Unlike cross-chain bridges, Thorchain offers native asset cross-chain rather than a wrapped token form. Thorchain built a blockchain using the Cosmos SDK and created multiple AMM pools of native tokens (BTC, ETH) and $RUNE of Thorchain tokens within its protocol in the form of AMMs. When users cross-chain, they are actually SWAP with native tokens on different blockchains through Rune to get the native assets on the target chain.

Technically, Thorchain uses an advanced cross-chain messaging system and a custom Byzantine fault-tolerant algorithm. It has been continuously improved after being hacked several times to improve the security of cross-chain messaging. Thorchain is regarded as one of the most potential cross-chain infrastructures, solving the pain points of cross-chain asset liquidity and transaction efficiency, and becoming the most liquid route for BTC-ETH cross-chain channels on the chain.

What’s new on Thorchain?

Thorchain has received two major updates this year, the first of which is the introduction of the Streaming Swaps mechanism, which allows users to instantly swap large amounts of cross-chain assets, without being limited by the lack of users due to the lack of liquidity in the past. Here are the main ideas for users to use Streaming Swap:

1. The user initiates a large cross-chain swap, e.g. 10 BTC for 3000 ETH.
2. The protocol splits this swap into multiple small streaming swaps in units of 0.1 BTC.
3. Send ETH to the user as soon as you execute a 0.1 BTC for about 30 ETH of streaming exchanges.
4. Repeat the streaming swap until all 10 BTC are exchanged for 3000 ETH.

This streaming exchange mechanism realizes the instant settlement of large-amount exchanges, reduces slippage losses, improves the efficiency of capital use, and also enhances the protocol’s ability to resist saturation attacks.

In terms of data, since the launch of Streaming Swap in the third quarter of this year, the transaction data shows a significant increase, and the main trading volume is still on BTC trading pairs. This shows Thorchain’s success in providing a more efficient and convenient cross-chain transaction solution and attracting more users to participate.

Thorchain’s market share across all DEX trading volume line chart Source: Defillama

Thorchain’s market share of all BTC transactions Source: Coingecko

Another big update is that Thorchain Lending, which has been discussed on forums for nearly two years, is finally officially live. Thorchain Lending focuses on interest-free, non-compulsory liquidation, and non-maturity lending products, which can provide users with borrowing and leverage. So, how do you achieve no interest, no compulsory liquidation, and no maturity date?

The main reasons for this include:

1. The interest comes from the income of the pledged assets, rather than being paid by the borrower, so interest-free lending is realized.
2. The proportion of additional collateral assets is as high as 150%-250%, which reduces the liquidation risk, and the liquidation decisions are all based on smart contracts and protocol rules, without human intervention.
3. The borrower only needs to continuously replenish the collateral assets to use the borrowed funds for a long time, so there is no pressure on the maturity date, and the borrowing period is only bound by the duration of the mortgage.
4. Users pledge ETH to obtain stablecoin borrowing, ETH obtain income through liquidity mining, which can offset the cost of borrowing and obtain net income.
5. The liquidation comes from the transfer of the premium of the collateral assets, which does not require the borrower to take the initiative to bear the risk, and the risk can be controlled.

The launch of the Thorchain Saver Vault in conjunction with Lending also allows Thorchain’s total value locked (TVL) to rise even further. Saver Vault allows DeFi users to simply deposit the native token without having to take on the volatility risk of $Rune, which effectively attracts users to deposit assets and provides a source of underlying assets for long-term staking. These innovative initiatives provide users with more choice and convenience, while also being expected to promote the growth and development of the Thorchain ecosystem.

Competitor on the same track - Maya

Maya Protocol is a decentralized cross-chain protocol built on the basis of Thorchain, which was launched in March this year, belongs to the Thorchain friendly fork project, and is supported by the Thorchain community, which is very different from Thorchain in terms of cross-chain AMM mechanism, with the following main differences:

1. Maya Protocol, as a friendly fork of Thorchain, aims not to replace but to enhance Thorchain, providing backup support and resiliency for decentralized infrastructure, just like an airplane twin engine can improve reliability.
2. Maya has introduced some unique designs for capital efficiency, security, and value capture, such as liquidity nodes, dual-token mechanism, impermanent loss protection, and more.
3. Maya also plans to support more public chains, such as Arbitrum, Cardano, and Aztec, a smart contract chain, to help expand the entire cross-chain ecosystem.
4. The two have also achieved some functional integration through collaboration, such as one-click cross-platform aggregation transactions, streaming exchanges, etc., and users can seamlessly operate between the two platforms.

Overall, Maya and Thorchain have built a complementary cross-chain alliance that solves the limitations of a single solution and jointly promotes the development of decentralized finance

Competitor on the same track - ChainFlip

Unlike Maya Protocol, which is a community-based fork project, Chainflip is not small and is one of the king-level projects with tens of millions of funding, which was led by Framework Ventures in 2021 and 2022 with the participation of Blockchain Capital and Pantera Capital, with a total of $16 million in two rounds, and finally ushered in the mainnet launch this year, but its products have not yet been opened.

Chainflip is a hybrid decentralized trading protocol, Chainflip is positioned as a hybrid decentralized trading protocol that allows seamless value transfer between any blockchain, including BTC, EVM, and the underlying network, in an attempt to combine the advantages of centralized exchanges and DEXs to achieve efficient asset trading and risk management.

In addition, its biggest selling point is the design of the Jit AMM mechanism, which solves the cross-chain challenge by minimizing slippage and providing accurate pricing, which solves the shortcomings of users who provide liquidity in Thorchain must bear huge uncompensated losses, allows market makers to join unilateral liquidity, and also improves the experience of Thorchain in terms of user-friendliness, which requires the installation of a specific wallet, and Chainflip supports users to use ordinary wallets to convert value on any chain.

In general, as described by Chainflip, Chainflip has a better product experience and design than Thorchain, but although the mainnet has been launched, the main product cross-chain DEX has given way to open use on the mainnet, and whether it can effectively attract TVL is a key to the long-term survival of the product in the future, especially since Thorchain has been deeply involved in this track for many years, and it takes considerable effort to grab this market share.

Author’s point of view

Scott@GryphsisAcademy

I’m going to look at it from a trading perspective. We first added $RUNE to our watchlist because of the BTC inscription explosion in May, when ThorChain was added as a BTC native cross-chain DEX after a BTC ecological combing. Secondly, ThorChain is built based on the COSMOS SDK, and the COSMOS ecosystem has been TIA for more than a month, and INJ, the outbreak of KUJI has also made funds pay attention to the hype of the COSMOS ecosystem. Therefore, ThorChain is a double beta that can eat the BTC ecology and the COSMOS ecosystem.

Secondly, the strong value capture ability of ThorChain’s economic model, the first-mover advantage, and the team’s active innovation at the end of the bear period, the launch of Streaming Swaps and “Ponzi” lending in July and August sparked discussion and attention in the market, and also laid out the layout for the growth of TVL and Volume in the bull market in advance. Therefore, in the BTC ecology and the COSMOS ecological track, the strong alpha ability is highlighted.

Maya Protocol and ChainFlip, which came out later, as competitors to ThorChain, also had an anchor for valuation, and many people on Twitter were doing comparable valuation analysis of price multipliers at that time, and came to the conclusion that they would rush $CACAO and $FLIP. When more and more competing new projects come out in the market, new projects can break the original barriers of old projects through higher token incentives, which is also a more interesting place for Web3 general government economy. At the same time, more competing products will appear, which will distract investors. Therefore, at present, we will combine some capital indicators to appropriately reduce holdings.

@19971122 DT

In my opinion, with the vigorous development of the current hot trend BTC ecosystem, the demand for cross-chain between EVM public chains such as BTC ETH and the Solana ecosystem, which has also been quite hot recently, will become stronger and stronger, and cross-chain DEX is indeed an upward climbing business, but this wave of Rune surge is more inclined to the launch of Thorchain Lending, which brings more use scenarios to Rune and can effectively deflation, resulting in a flywheel effect, not purely cross-chain DEX In the long run, the author will focus more on Thorchain itself, because I personally think that a large part of the success of Thorchain is not because of how good its products are, but because the project party has a very strong connection with the community The content is all from the community, and its perseverance in standing after being hacked many times proves the determination of its project team, so Thorchain is the absolute leader in this track and will be so in the short term.