THORChain: swap, earn, and borrow major coins with ease
THORChain is a 2021-released platform that focuses on various asset-derived functions, which involve different financial operations. The three main features are swapping, earning, and borrowing. In this light, the platform is very much an online, decentralized bank—albeit not licensed like them and with poorer functionality.
It's still not basic, really. Much of it is indispensable, as the decentralized finance area of web3 has been largely neglected for years. The projects have either been wallets or some sort of cross-chain transaction facilitators. However, you can do a lot more. That's exactly what THORChain is about — pushing those boundaries.
About THORChain
THORChain is a decentralized finance (DeFi) solution. It means that it serves to fulfill the financial needs of individual users while also being a completely automated system with little input from its creators or interference from third parties. Instead, it's governed by the community. The mechanism exists as it is, ensuring security and privacy.
It's an independent blockchain with a native utility token called RUNE. The latter is used for a variety of financial operations, but also to reach consensus and for governing. Besides that, it's also available in free flotations on a number of exchanges. THOR is built on smart contracts, much like Ethereum but functionally distinct from it.
The three main functions here are, as mentioned, swap, earn, and borrow. Let's examine them one by one.
Swap
Swapping coins essentially means exchanging one token for the other all within the same system. It doesn't mean you'll sell or buy them in the usual sense, which is how you typically swap them. Instead, you replace a certain amount of token A with some amount of token B at market value.
There are many tokens you can process in this way, and the selection grows. It now includes a lot of various tokens from major stuff like BTC and ETH and stablecoins like USDT, USDC & DAI to minor currencies such as Cosmos. The possibilities of this are immense, especially considering that the entire procedure supports multi-chain transactions.
What that means is that you can seamlessly import your assets from other blockchains without resorting to crypto exchanges. You can use virtually any non-custodial wallet, provided it's part of a supported chain. Throughout the procedure, you don't relinquish custody of your assets to any third party.
Earn
A more curious function is earning money by utilizing the THORChain features. It can also be divided into several sources of yield.
- Providing liquidity. One of the chief ways to gain income is by providing liquidity to the system. You can voluntarily provide one of the major coins in addition to the same amount of RUNE. This way, you'll support the native token by supporting its market value.
- Saving. You can instead work with a single asset without tying it to RUNE. As a result, you'll receive a percentage of your deposit as part of a regular yield, much like you'd do with a brick-and-mortar bank. The interest rate on such deposits is over 20%, depending on how often you want your repayment to arrive.
In exchange for providing liquidity, you'll receive a small fee as compensation for your service to the platform. It's basically this platform's equivalent of staking, except you also benefit everyone by tying the value of RUNE to that of the other token, providing liquidity, and maintaining adequate market value.
As for saving, it's a more streamlined mechanism that allows you to collect a stable yield on your deposit on a regular basis. It provides you with a more steady income, as well as allows you not to risk RUNE volatility. All in all, there are several ways you can attain passive revenue with THORChain, and that's great.
Borrow
The other curious way to fund your operations is by borrowing a certain amount of USD collateralized with a comparable value of some cryptocurrency. Seeing how the platform is hugely interoperable with other chains, it means that you can reach out to any of your other wallets and quickly turn it into USD.
You will need to repay it, obviously. Additionally, these loans are overcollateralized, which means that the value of the collateral exceeds that of a loan. In a practical sense, it makes small, precise loans more logical. At the same time, you don't have to worry about margin calls or strict deadlines.
Consensus Mechanism
As for the way this platform is governed, it's actually a very unique case. THORChain is deeply community-driven, and it's also reflected in the way the consensus is reached here. It's called Threshold Signature Schemes, or TSS.
In particular, the consensus on what transactions to approve is reached by the collective signature provided by multiple validators. It's anonymous, and they don't have to reveal their private keys while doing it. Instead, they create a common signature that determines which transaction is added to the block.
The reason this mechanism is implemented is because it allows for the interoperability that this blockchain so cherishes. The signatures are valid across many blockchains, and they aren't incompatible with the other consensus mechanisms you can find in the wild. It also maintains distributed trust, allowing no one user to take the reins.
The other measure that makes this system resilient to attacks and overall very secure is the BFT mechanism. The Byzantine Fault Tolerance ensures that 'faulty nodes' are part of the consensus mechanism, which means you can reach an agreement by basically ignoring the untrustworthy or compromised node operators.
In this system, you don't get rewards proportional to how much you invested into the block creating process. Instead, each validator is compensated equally with a portion of transaction fees as a thank-you for their work.
Conclusion
THORChain is an incredibly beneficial decentralized finance provider. It offers some features that are rarely seen in the crypto world. In this sense, it's invaluable. Whether you want to trust them with your money is a different question completely. At the same time, it's true that the platform has reached an enviable level of decentralization, especially for a DeFi solution.
