Supporting multiple currencies, THORChain is built on the concept of a cross-chain architecture that enables a smooth exchange between tokens of different networks. The THORChain network also covers Bitcoin and Ethereum exchanges.
Key features of THORChain
Eliminating Oracles
In an attempt to keep pricing accurate, most decentralised exchanges use off-chain sensors, which adds the element of centralisation to the platform. Oracles monitor stocks, weather, and even payment balances. However, THORChain uses arbitrage traders to keep the pricing accurate. A token with a small value will be bought and sold on other exchanges. A token with a high value will be purchased from other exchanges to increase the volume in THORChain’s exchange. These actions continually balance out the price without opting for any centralised tools. Arbitrage traders are appropriately incentivised with THORChain’s token (RUNE) to ensure that the volume of RUNE matches the volume of other cryptos on the exchange.
Combating Liquidity Dilution
When there are too many liquidity pools for a single token, it becomes challenging to find counter-offers for them. However, every token is first paired with RUNE and then with the next token on this exchange. This transaction is almost instantaneous and seamless. Pairing the tokens with RUNE first eliminates the need for having a large number of liquidity pools and helps concentrate liquidity.
Low Cost
One of the most significant disadvantages of decentralised exchanges is the high costs. THORChain not only keeps the costs much lower than other exchanges, but it also charges a fixed outbound fee, which is a dynamic liquidity fee, and redistributes a part of these fees to validators or liquidity pool providers.
THORChain introduced a unique fee called the Slip-Based Fee. This fee is meant to combat whale manipulation, which refers to cash-heavy investors holding power to drastically increase or decrease the price of a token by making a large sale/buy. The calculation of the Slip-Based Fee is based on how much your investment can alter the value of the liquidity pool token. This fee is distributed to the liquidity pool providers in the form of rewards.
Speed
High scalability and responsiveness are huge attractions for investors. A THORChain swap takes less than 5 seconds to be fully executed.
Non-profit Organisation
THORChain’s anonymous team, backed by its promise of complete transparency, makes it extremely reliable. Furthermore, any RUNE gathered as fees are distributed to network participants as rewards.
How does THORChain make this happen?
Interoperability
Bitcoin to Ethererum and other such cross-chain crypto transfers are not possible directly from the primary networks. THORChain’s interoperability function facilitates such transactions without the need for intermediaries.
Liquidity
By making it easy to exchange one crypto for another, THORChain enables an increase in liquidity and popularity for all supported cryptos. Users can also earn additional income through liquidity pools by depositing their cryptos in THORChain’s decentralised exchange. This system also aids in a seamless borrowing mechanism.
Transparency
THORChain is extremely open about its functions. Users can track detailed developments of the platform through various channels.
The THORChain ecosystem
THORChain’s ecosystem can be categorised into three parts.
- Educational Content
- Projects
- Network Tools
This ecosystem helps THORChain gain investors’ trust and promote a mass-market entry for blockchain.
RUNE
A total of 500 million RUNE tokens were created, of which around 13 million unsold RUNE tokens have been burnt. Currently, 330 million RUNE tokens are in circulation. RUNE cannot be mined, but it can be staked in liquidity pools.
Disadvantages of Decentralised Exchanges like THORChain
For someone who is used to the smooth experience of a centralised crypto exchange, this platform might seem a little complicated to get the hang of. It has fewer features, and the process can be a little cumbersome for investors who don’t mind paying transaction fees on Centralised Exchanges. Decentralised Exchanges are also heavily dependent on liquidity pools created by other investors. While they take steps to ensure a smooth exchange, there is always a risk involved.
Parting thoughts
The rise of prominent players in the crypto market has resulted in an increased need for cross-chain systems such as THORChain. With the unique features offered by this network, the decentralised exchange ecosystem is bound to grow rapidly.
