RUNE token has increased by more than 4 times in 40 days, and THORChain is taking off with the tailwind of the Bitcoin ecosystem
THORChain has risen to become the fifth largest BTC exchange.Author: Xiyou, ChainCatcher
"The cumulative increase of over 4 times in 40 days" has made THORChain a hot topic in the crypto community. Its native token RUNE started rising from $1.8 on October 23, reaching a peak of $7.3 on December 3, marking a new high since April 2022, with the token's market cap jumping from outside the top 100 to within the top 40.
Currently, the RUNE token fluctuates around $6.6, with a market cap of about $2 billion, ranking between 36th and 40th among crypto assets.
The explosive price increase of the token has also drawn users' attention to the THORChain protocol, leading to curiosity about how this cross-chain protocol, once plagued by "hacker attacks," has managed to return to the top. What are the driving forces behind this resurgence?
For crypto OG players, THORChain is no stranger. During the last bull market cycle, when Layer 1 networks and DeFi applications exploded, interactions between chains became routine, and cross-chain asset transfers became a necessity. THORChain was once regarded as a star representative project in the cross-chain space due to its ability to facilitate native crypto asset cross-chain transactions, receiving funding support from several well-known crypto institutions like Delphi Digital and Multicoin Capital.
However, following the Luna crash in May 2021 and the bear market in the crypto market, THORChain seemed to be unable to escape a cooling fate. In June of the same year, it was reported that hackers exploited code vulnerabilities, leading to losses of over ten million dollars. Since then, THORChain's products appeared to enter a dormant state, with little news about it in the crypto market, aside from occasional attention due to one or two security incidents, and the price of the RUNE token remained around $1.
Recently, the abnormal fluctuations in the price of the RUNE token have stirred significant waves in the crypto community, marking a strong return for THORChain. It was discovered that this cross-chain protocol, riding the wave of the Bitcoin ecosystem's explosion, has already cleared the shadows of hacker attacks and has been reborn.
In terms of product layout, THORChain has also undergone a transformation, integrating cross-chain bridges, lending, SWAP, and other products, and plans to launch contract products, evolving from its initial cross-chain bridge offerings into a truly foundational cross-chain protocol infrastructure.
So, how did THORChain rise from the brink of death to find new life? What are the factors driving the price increase of the RUNE token? Will THORChain continue to maintain this growth momentum?
Bitcoin Cross-Chain Demand Drives THORChain Trading Volume Surge
From the K-line chart, RUNE's rise began around $1.8 on October 23, entering a bullish phase, increasing more than threefold throughout November, and peaking at $7.3 on December 3, setting a new annual high for 2023.
Why did the RUNE token embark on a path of explosive growth in October? What exactly happened with THORChain? Perhaps we can find some clues from the changes in THORChain protocol's TVL and trading volume.
Data shows that THORChain's trading volume began to explode in October, with $3 billion in trading volume for the month, $8 billion in November, and nearly $1.2 billion in just under a week in December.
From the trend of DeFiLlama data, THORChain's product TVL and trading volume also began to show a surge starting in October, with TVL increasing from $50 million to the current $200 million, and daily trading volume rising from a few million dollars to around $200 million, even exceeding $300 million on multiple days in November.
As of December 7, THORChain's TVL was $196 million, with a 24-hour trading volume of $195 million.
This indicates that the increase in the price of the RUNE token is related to the rise in trading volume on the THORChain platform.
So, what is driving the increase in THORChain's trading volume? According to platform data, the value of BTC locked on THORChain has risen from millions to $130 million, driven by increased demand for BTC trading volume.
This is mainly because THORChain is the only on-chain platform that supports native BTC cross-chain transactions.
With the explosion of the Bitcoin ecosystem, the demand for on-chain BTC transactions has also increased. However, currently, users looking to obtain on-chain BTC or exchange on-chain BTC for other assets often use CEX platforms as intermediaries, withdrawing BTC from CEX to on-chain or vice versa before exchanging for other assets. This process is overly complicated for users accustomed to on-chain transactions, and many users have their crypto assets stored in various chain ecosystems, making BTC cross-chain or direct exchanges of other assets for BTC a necessity.
The cross-chain Swap on THORChain allows for direct exchanges between BTC and other crypto assets. For example, ETH on Ethereum, BNB on BSC, and AVAX on Avalanche can be directly exchanged for BTC on the Bitcoin chain, or BTC can be exchanged for the desired on-chain crypto assets, eliminating the need for interaction with CEX.
According to ChainCatcher news, during October, the attacker from FTX repeatedly exchanged stolen ETH for BTC through THORChain. On October 5, the attacker used THORChain to cross-chain exchange 15,000 ETH worth $25 million for BTC.
Some crypto users reported that based on BTC trading volume data from November 29, THORChain has become the fifth-largest BTC exchange in the CEX and DEX markets, on par with Kraken's French site.
Additionally, this user predicted that by the end of next year, THORChain could potentially rise to be among the top three exchanges.
However, some users pointed out that THORChain does not support fiat currency deposits and withdrawals, and only facilitates on-chain BTC exchange transactions, making its trading volume incomparable to that of CEX platforms.
Regarding the current development status of the THORChain protocol, some crypto users stated that THORChain should no longer be compared to DEX or cross-chain bridges; it has become a new on-chain native BTC trading venue following CEX.
Currently, in terms of BTC trading volume, it is clear that THORChain has become the main battleground for on-chain BTC trading.
THORChain Has Integrated Cross-Chain Swap, Asset Storage, and "No Conditions" Lending Features
Leveraging the momentum from the Bitcoin ecosystem, THORChain has successfully transformed from a cross-chain bridge product to the leading on-chain BTC trading venue. In fact, THORChain has been continuously making public moves, launching new products one after another. In July, it launched Streaming Swaps, allowing users to split large transactions into multiple smaller ones for better execution prices; in August, it announced the launch of a lending protocol, claiming that this lending product features "no forced liquidation, no interest, and no expiration date"; in October, it announced that all native tokens RUNE had been fully distributed, with all VC and team tokens unlocked, leaving only 7 million (liquid) held by the treasury to fund the ecosystem.
Especially the lending protocol launched in August has attracted much attention due to its "no forced liquidation, no interest, and no expiration date" mechanism. It is reported that the official design of this product took over a year.
Currently, THORChain's lending product LENDS only supports BTC and ETH as collateral for loans, with plans to expand to other Layer 1 gas assets like BNB, BCH, LTC, ATOM, AVAX, etc. The collateralization ratio ranges from 200% to 500%, depending on market demand, with a minimum loan term of 30 days.
How is the "no conditions" mechanism specifically implemented? When users deposit collateral assets like BTC or ETH, they are first exchanged for RUNE, then a portion of RUNE is exchanged for the stablecoin asset TOR (a stablecoin developed by THORChain) as debt to the user, while the remaining RUNE is burned. Therefore, whenever a new loan is generated, RUNE assets will experience deflation, while during loan repayment, RUNE will experience inflation.
The absence of interest is because users need to pay multiple swap and asset conversion fees when borrowing. For example, if a user deposits 10 BTC, at a 200% collateralization ratio, they first exchange BTC for RUNE, then lend out half of the RUNE for TOR to the user, while THORChain burns the other half of the RUNE. During repayment, TOR is first exchanged for RUNE, and the system needs to mint additional RUNE, which is then exchanged back to BTC to return to the user.
Thus, from the initiation to completion of a loan, at least four swap processes and two asset conversion processes occur, and the fees generated during these processes will be borne by the user. Therefore, when borrowing, the fees effectively cover the interest on the loan.
The absence of liquidation and expiration dates is because all loans within THORChain are pegged to RUNE tokens as intermediary products, meaning that what users are borrowing is also RUNE, and the debt is fixed and denominated in TOR. This also means that when the price of the collateral asset rises, users only need to repay a fixed amount of RUNE upon redemption, and similarly, if the price falls, they still only need to repay a fixed amount of RUNE.
LD Capital believes that the design logic of this product is essentially a "long-short product," where users and RUNE are counterparties. For users, it is essentially a long position on BTC/ETH collateral assets, shorting TOR; for the protocol, it is essentially shorting BTC/ETH while going long on TOR. Therefore, users are effectively purchasing a call option on BTC for a certain period, with THORChain and RUNE holders being counterparties.
Additionally, the moment a loan occurs within THORChain, it is already fully repaid. What does this mean? For example, if A (the borrower) borrows 100 yuan from B (THORChain), A needs to collateralize 200 yuan to B. After B lends A 100 yuan, B actually has 100 yuan remaining, and the remaining 100 RUNE held by B is burned, which means the debt between B and A is cleared at the moment it occurs, and B does not need A to repay, hence there is no expiration date and no liquidation.
Although the collateral is not a stable currency like the RMB, but rather volatile assets like BTC and ETH, the debt is cleared at the moment of occurrence, regardless of how the price of the collateral fluctuates, it ultimately only results in an increase or decrease in the RUNE tokens within the THORChain system. However, for the THORChain protocol, the short-term inflation or deflation of RUNE quantity is merely an internal accounting matter, and since the protocol is controllable, there is no liquidation or expiration date, and it is preferable for users not to have to repay at all.
As of December 7, the value of BTC collateralized in THORChain's lending product was $2.4 million, and ETH was valued at $1 million. From the operational data, the performance of this product has not been ideal.
In contrast, the previously launched yield-bearing storage product Saver has been more popular, locking in $179 million worth of crypto assets. This product allows users to deposit single assets (such as BTC, ETH, BNB, etc.), earning returns from each cross-chain exchange.
Additionally, users can earn higher returns by providing LP liquidity to the platform.
It is important to note that the official subsidy for impermanent loss on LP assets in THORChain has been canceled. Today, THORChain also posted on social media to remind users that impermanent loss on LP positions has been disabled, and users need to reassess their risks.
In summary, the THORChain protocol has developed and integrated cross-chain platform THORSwap, lending LENDS, storage (Saver), stablecoin TOR, and other products. Future plans include launching contracts, order book trading, and other features.
Furthermore, THORChain supports integration with other DEXs, cross-chain bridges, or wallets, such as the cross-chain bridge Chainflip and the aggregation trading platform Matcha, among other DeFi products.
Clearly, THORChain has evolved step by step from a cross-chain bridge product into an infrastructure product.
Lingering Shadows of "Security Incidents," High Yields May Hide Secrets
Despite the growth in operational data suggesting a bright future for THORChain, the announcement in October that all RUNE tokens had been fully distributed was seen by users as a clear signal of positive news. However, some users still worry about the security of assets on the platform, given that this project has been marked by hacker attacks and security incidents.
The experience of being attacked three times within a week due to code vulnerabilities in late June 2021 is particularly memorable. According to statistics from the SlowMist team, on June 29, 2021, THORChain suffered a "fake recharge" attack, losing nearly $350,000; on July 16, 2021, it was attacked again with losses of nearly $8 million; and on July 23, 2021, THORChain faced another attack, losing nearly $8 million again, totaling over $16 million in losses.
Although in Q1 2022, THORChain announced that its financial revenue exceeded $200 million and stated that all debts had been repaid, it did not instill much confidence in users.
In March of this year, it was reported that there might be potential vulnerabilities that could affect THORChain's operations, leading the official team to suspend trading and conduct an investigation. Although this vulnerability did not result in asset losses, the security of THORChain, which had locked assets worth over $100 million, remains a concern, and the shadow of previous attacks is hard to shake off.
Additionally, YouTuber @crypto3D discovered that the high yields displayed on THORChain's cross-chain platform THORSwap may also hide secrets. The displayed yields are not the APR commonly seen in DeFi applications but rather the "LP Annual Growth" rate, which is surprisingly high and gives users the illusion of being an annualized return on LP.
In fact, this annual growth rate includes the profits from the price appreciation of the assets in the LP. For instance, in the RUNE-BNB liquidity pool, the displayed LP growth yield is 1794%, which includes the price appreciation of both BNB and RUNE, calculated as annual growth.
Therefore, users engaging in LP market-making on this platform should not be misled by the high yields; they need to calculate their actual returns themselves.
