A Comprehensive Guide to the Thorchain Network
Decentralized finance (DeFi) has a multitude of interesting blockchain protocols, though not all of them get enough attention and credit. Meet Thorchain, a decentralized liquidity protocol for yield farming.
Table of contents:
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What is Thorchain?
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The technical characteristics of Thorchain and RUNE price analysis.
What is Thorchain?
Even though the cryptocurrency space is developing in leaps and bounds, it's still plagued by the lack of interoperability, which means that digital assets that are native to a certain blockchain can't be directly transferred or traded on another blockchain unless they are tokenized or "wrapped." This is why the community remains reliant on centralized exchanges like Binance and Coinbase to trade between different types of cryptocurrency assets, while the majority of decentralized exchanges (DEXs) are stuck on the Ethereum network with its high gas fees. This creates a situation where each separate blockchain has decent liquidity while the market, in general, stays illiquid. It's a nagging problem that hinders the mass adoption of cryptocurrencies, but there is a blockchain protocol called Thorchain that might offer a viable solution.
Thorchain was created on the Cosmos network that positions itself as the "Internet of blockchains," a constantly expanding ecosystem of interconnected decentralized applications and services that offer means for trading different types of cryptocurrencies in a decentralized manner. There is also a decentralized exchange of the same name, where participants can engage in yield farming by filling up different crypto pools with liquidity.
Similar to the Bitcoin network, Thorchain was created by an anonymous team of developers. It currently operates as a chaosnet that was launched this April. This protocol belongs to the decentralized finance (DeFi) sector that is characterized by the provision of financial services like lending and borrowing in the absence of third-party intermediaries.
In essence, Thorchain is an altered version of the protocol for continuous lending pools that exist on the Bancor network. It stipulates that during each trade, an underlying asset is always swapped against the network's native token, RUNE, and then RUNE is converted to another asset.
The technical characteristics of Thorchain and RUNE price analysis
From a technical standpoint, Thorchain is a proof-of-stake (PoS) blockchain network that requires node operators to validate transactions and establish liquidity pools in exchange for monetary rewards paid in RUNE. There are currently 100 validators that are being put in rotation to avoid abuse of power by the nodes, though, theoretically, this number could be increased to 300. Each node must have at least 1 million RUNE staked in order to perform the validations.
Like most DeFi protocols, Thorchain utilizes the automated market maker (AMM), an algorithm that uses the so-called "money robots" to create price action on DeFi markets and, consequently, generates prices of the underlying digital assets. Those who wish to become a liquidity provider on the Thorchain DEX need to deposit a certain amount of RUNE along with the other asset to a pool of their choice.
Thorchain also employs the over-collateralized bonding system in which the "under bonded" nodes receive higher rewards than liquidity providers and creates a security mechanism where maleficent nodes risk losing a significant amount of bonded funds. You can start using Throchain by simply downloading a compatible digital wallet, preferably Keystore, and connecting it to the platform's interface.
As for the RUNE token, it's not doing particularly great at the moment as its value had deteriorated from $21 to the current $4.6 as a result of the crypto market crash. It is now under considerable selling pressure, so there is a high probability that the price could fall to $3. However, the team promises to expand the offered range of services, improve wallet support, and add Dogecoin, Zcash, and Monero pools, which might help to pull the price of RUNE out of the bearish hole and put it back on the bullish path.