Like Uniswap, THORChain provides transaction liquidity by liquidity providers and maintains price balance through arbitrage; the difference is that it can realize direct cross-chain asset exchange.
Further reading: ” Why is THORChain liquidity protocol worth paying attention to? Read through the cross-chain version of Uniswap investment logic “
Original title: “THORChain: Operation Principle and Token Mechanism”
Author: Blue Fox Notes
THORChain is a decentralized liquidity network. For simple understanding, it can be compared to the cross-chain Uniswap.
THORChain is different from other cross-chain exchange projects. It does not use “warpped tokens” to cross-chain assets (such as wbtc), but directly exchanges across chains in a decentralized way. To complete, it does not need to deliver the tokens to a third party for safekeeping.
How THORChain works
THORChain is a liquidity protocol based on Tendermint&Cosmos-SDK. It uses Threshold Signature Schemes to create a cross-chain transaction market that requires no permission and no trust. The liquidity of THORChain is also provided by liquidity providers. Liquidity providers can earn transaction fees and token incentives. This is similar to Uniswap. The market price is maintained by the asset ratio in the asset pool. If the price in the pool deviates Market prices, arbitrageurs will make their prices consistent with market prices through arbitrage transactions. The main difference between it and Uniswap is that it can realize direct cross-chain asset exchange.
There are four roles on THORChain: liquidity provider, exchanger, arbitrageur and node operator. Node operators are responsible for maintaining the operation and security of the network, and can obtain RUNE token rewards, but at the same time they need to submit a deposit to prevent them from doing evil.
From the technical level, there are three aspects that support the operation of THORChain: 1-way state pegs, state machine, and threshold signature mechanism protocol (TSS Protocol). It combines these three technologies, and at the same time, through the incentive mechanism of RUNE tokens, it forms a THORChain decentralized cross-chain exchange mechanism.
Unidirectional state anchoring
The cross-chain state anchor connects the main chain and the THORChain. This mechanism does not lock the assets, but only the state of the anchor chain, which is also called one-way state anchoring. Among them, each connected chain has a “Bifröst” module, which can handle the details of the connection to the chain, such as chain configuration and transaction details. After the nodes complete the synchronization, they will monitor the vault address of each chain. If they see an entry transaction related to the monitored Vault address, they will convert it into a THORChain witness transaction. Regardless of the transaction type, the witness transaction parameters of each chain are basically the same. THORChain processes each observed transaction and collects signers. Once the vast majority of nodes agree to a particular transaction, it will transition from the waiting state to the final state. Simply put, the THORChain node observes other blockchain transactions, and then proves the occurrence of the transaction through the consensus of the node.
From the perspective of the exchanger, as long as there is a corresponding liquidity pool, the exchanger can conduct transactions. The assets in the liquidity pool are composed of RUNE and other chain assets. Each pool asset has RUNE, which connects all pool assets in a single continuous liquidity network to form a continuous liquidity pool. When a user exchanges two connected chain assets on THORChain, it is exchanged in two pools. First, the chain asset is exchanged for RUNE in the first pool, and then RUNE is transferred to the second pool. Exchange these RUNEs into target assets in the second pool. During this process, users will not perceive RUNE, which can be handled by the state machine.
The state machine of THORChain
The state machine processes completed transactions and execution logic, such as sorting transactions, calculating state changes, and entrusting them to a specific outflow vault (Vault). Finally, the txOUT entry is created and stored in the Key-Vaule storage.
Threshold Signature Mechanism (TSS)
The core reason for THORChain’s threshold signature mechanism is security considerations. The primary consideration for transferring assets on the chain is security. Through TSS, THORChain can provide a higher level of security, and reduce risks when generating new addresses and signing transactions. After creating the final transaction, the signer downloads the transaction from the local copy and serializes it into the correct transaction for the target chain using the client of the respective chain. Then send it to the TSS module that coordinates the key signature. The final signed transaction is broadcast to the respective chain.
In summary, one-way state anchoring allows chain-agnostic bridging agreements; state machines coordinate asset exchange logic and commissioned redemption transactions; Bifröst Signer Module (signer module) converts redemption transactions into specific chain transactions; TSS protocol Support distributed threshold key signature.
THORChain’s token mechanism
RUNE is the token of THORChain, and it is an indispensable part of the THORChain ecosystem. It is closely related to liquidity, security, and incentive governance.
- Liquidity: RUNE can be used as a settlement asset.
- Security: RUNE can be used as an important mechanism against witch attacks.
- Incentive: RUNE can be used as an incentive token.
- Governance: RUNE can be used as a governance token.
The relationship between RUNE value and liquidity pool assets
RUNE is the original basic token of THORChain. It is injected together with other assets in the liquidity pool. This is similar to Uniswap. When providing liquidity for Uniswap, it injects ETH while injecting an asset into the pool. Assuming that there is no RUNE as the basic settlement currency, each asset needs to form a liquidity pool with other assets. A new asset will need to create many liquidity pools to dilute liquidity.
Since RUNE has 50% of the assets in the liquidity pool, that is to say, if the liquidity pool is worth 100 million US dollars in other on-chain assets, then 100 million US dollars of RUNE need to be injected into the pool. In addition, to ensure The security of the assets in the pool requires at least a pledge of RUNE worth more than US$200 million. In this case, the value of RUNE’s locked assets can reach more than US$300 million. This means that as the assets on the chain in the pool increase, the value of RUNE will increase accordingly, otherwise it will not be able to support the operation of decentralized cross-chain exchange. From this perspective, RUNE tokens and THORChain have a high degree of integration.
RUNE is used to resist witch attacks
Bitcoin uses a CPU-one-vote PoW mechanism to prevent control of its network, while ETH2.0 uses 32ETH-one-vote PoS to prevent control of its network.
Thorhain is also a PoS network. The nodes of THORChain need to submit a deposit (at least 1 million RUNE, currently worth about 600,000 US dollars). This deposit is not only used to obtain node qualifications, but also to underwrite the assets in the pool. If a node wants to steal assets, the node’s deposit will be deducted, and the amount is 1.5 times. Through the form of pledge deposit, it is ensured that the node will not do evil.
RUNE is used as an incentive for network operation
Used as expense
RUNE is the native token of THORChain, and it can be used as a transaction fee on the network. All exchange transactions need to pay a fixed network fee, as well as dynamic fees. This can prevent various attacks, such as denial of service attacks.
Subsidies for gas and other expenses
Cross-chain exchange on THORChain requires continuous consumption of gas and other fees. THORChain will continue to observe external transactions, find the consumed gas and other fees, and pay the liquidity provider RUNE twice the value of the fee.
Additional rewards
After collecting fees and subsidizing gas, THORChain calculates block rewards, divides them according to the incentive pendulum algorithm, and then pays them to the pledgers and liquidity providers of RUNE tokens. These rewards will encourage nodes to pledge the best amount of margin RUNE and provide liquidity to the liquidity pool.
THORChain’s RUNEVault plan and the formation of the community
THORChain’s RUNEVault pledge plan lasted 66 weeks, with a total of 2,600 members participating, pledged 160 million RUNE, and incentivized 65 million RUNE pledgers (as of the writing of Blue Fox’s notes, the reward was worth more than 43 million US dollars).
One of the purposes of RUNEVault’s early pledge rewards was to build a community of supporters. RUNE initially issued 100 million RUNEs, and there were probably hundreds of supporters. As the RUNE pledge distribution progresses, more participants will enter, which will help increase the network. Of resilience.
In 66 weeks, the number of active participants increased from a few hundred to more than 2,600. At the same time, there were more than 6,000 coin holders. During the incentive period, the token price of RUNE increased by more than 100 times at the highest point. Early holders made great profits. Some of them became loyal supporters of RUNE and actively participated in community promotion and development. This benefit feeds back and promotes the development of the project.
This also has reference significance for other projects. Once the early holders get high profits, they may form a loyal community and promote the development of the project. Of course, the premise is that the project itself is a project that wants to be truly continuous.
Therefore, for projects that really want to develop in the long-term, it is conducive to the long-term development of the project to consider bringing high returns to early holders. This had a similar effect in the early Bitcoin and Ethereum. When the early holders get high profits, they may continue to contribute to the development of the project. Although not all participants will do this, even if 10% of the participants do, it will be beneficial to the development of the project.
BEPSwap of THORChain
With the launch of BEPSwap by THORChain, it has become one of the current focus of the THORChain community. BEPSwap is a decentralized exchange for Binance Chain assets, and it will be replaced by the decentralized cross-chain ASGARDEX in the future.
After the launch of the BEPSwap reward program, some RUNE holders migrated from RUNEVault to BEPSwap, as shown below:
In BEPSwap, users can earn two parts of revenue. One is transaction fees, which depend on the size of the transaction and the proportion of liquidity providers in the pool. The second is RUNE tokens.
Source link: mp.weixin.qq.com
