Protocol Deep Dive: THORChain

What is THORChain?

THORChain is a cross-chain liquidity protocol built on the Cosmos SDK. It uses Proof of Bond (which is similar to Proof of Stake) and Tendermint to achieve consensus, with the network being secured by its native token, RUNE. Its goal is to bridge otherwise non-interoperable chains together so that liquidity can move more easily between chains for a more seamless multichain world once the crypto ecosystem matures. This is essential after the “alt-L1” craze. The significant number of Bitcoin and Ethereum competitors popping up has made many realize that there may not be “one chain to rule them all”. On THORChain, it is now possible to have ecosystem-wide DEX aggregators, as well as DEXs that can perform native, cross-chain tokens swaps, all without users interacting with a traditional bridge, CEX, or wrapped tokens.

Why Do We Need Cross-Chain Liquidity?

The cryptocurrency market today lacks liquidity. This is in part because there are fewer market participants compared to traditional markets, resulting in relatively inefficient markets and volatile prices. However, this aspect of liquidity cannot be resolved until we achieve mass adoption, which won’t be realized until other fundamental problems in the ecosystem are fixed such as scaling, UX, and stability. However, one step we can take now is solving the issue of fragmented liquidity. Illiquid markets result in volatility, which can promote gambling culture instead of investing. Thus, these “currencies” seem more like a store of value than a medium of exchange. Volatility has limited the mainstream adoption of cryptocurrency, as the public generally views them as speculative assets that they could never see themselves using.

THORChain attempts to alleviate this by providing an underlying, decentralized liquidity network for all chains. THORNodes operate a node on every chain supported by THORChain. This allows for the swapping of native assets without the use of wrapped tokens, CEXs, or unsecure bridges. The issue with wrapped tokens is that once they are on the destination chain, they must be converted into a native asset — another barrier to truly efficient cross-chain liquidity. Additionally, the value of a wrapped token depends on the security of the party who wrapped it, adding centralization risk. THORChain uses vaults operated by nodes on each supported chain, meaning that ETH stays on Ethereum and BTC stays on Bitcoin. This provides much more security and usability between chains, and the use of Tendermint means development is conducted in Golang, the most flexible and reliable language for this without being application specific.

The Backbone of Cross-Chain Liquidity: The Bifrost Protocol

THORChain has a relatively limited validator set, with (as of 8/21/22) 90 active validators and 63 validators on standby since the number of active validators is capped at 120. Despite this limited set, a “churning” of validators occurs every 7 days, which cycles the list of validators that can write blocks to the chain. This maintains decentralization despite the limited number of validators. The minimum bond to become an independent validator is 300,000 RUNE, amounting to 2x the amount of external assets in pools to allow for complete underwriting of these assets. If a node attempts to steal assets or misbehave, their bond is slashed by at least 1.5x the amount they tried to steal. Validators are also required to run a node on each supported network, which helps support the Bifrost Protocol but can complexify operating a node.

The Bifrost Protocol is the core of THORChain’s cross-chain compatibility, using a set of bridges which are unlike the traditional bridge. Bifrost supports all UTXO and account-based assets, including forks and tokens. Previous attempts in cross-chain technology sacrificed security by relying on singular users, which introduces elements of centralization, or by requiring too many signatures for a multisig, which compromises on speed.

On THORChain, bridges come in the form of “Asgard vaults”. There are 5 of these vaults to support high transaction volume, each of which exists with its own private and public key on all 8 supported chains (as of 8/24/22), totaling 40 instances. This is a recent change clarified by Sam Yap on the THORChain Discord, which I will detail further in the Recent & Planned Improvements section. Since THORNodes are required to operate a full node of each supported network, these nodes also act as multisig signers for these vaults. Each vault requires 2/3 of the 20 nodes operating it to sign a transaction. Multisigning can be prone to collusion if node operators can identify each other. To prevent this, THORNodes are all anonymous, and Bifrost uses Threshold Signature Scheme (TSS). TSS introduces random shuffling of signers for vaults, making it extremely difficult for 2/3 of the nodes to collude. Each TSS signer’s bond is put up for security to dis-incentivize adverse behavior.

The Journey of a Native Cross-Chain Swap

As a user makes a swap, the original asset is sent to one of the 5 vaults’ instances that exist on the native chain, listing the swap as pending. Using Bifrost, THORNodes watch these vaults for transactions, and after the vault reaches the 2/3 TSS threshold, the transactions are finalized and converted to witness transactions on THORChain. Next, the swap logic is finalized on THORChain. A double swap occurs, swapping the first asset with RUNE, and then RUNE with the target asset. The same vault from before then uses its instance existing on the target chain to send the new asset from the pool to the user. This asset is now ready to be used on the destination chain without the use of wrapped tokens, traditional bridges, or CEXs.

To provide the liquidity for these swaps, a continuous liquidity pool (CLP) is used, which is an adaptation of Bancor’s smart token and rewards LPs with RUNE. CLPs also track the ratio of RUNE to the asset in each pool, creating an on-chain price feed. This allows the entire network to monitor the security of each vault, creating transparent risk-scoring of cross-chain bridges. These bridges are scored by the value of tokens LPed compared to the value of tokens bonded by validators, allowing users to make informed decisions on which bridges they use. Thus, Bifrost can detect diminishing bridge quality and raise the multisig threshold of an inbound vault in response. The other benefit of CLPs is that since they broadcast market events to the entire chain, participants can view anomalies and immediately perform arbitrage, making price-spoofing unsustainable for bad actors. CLPs allow users to permissionlessly bootstrap new liquidity pools by LPing in a new pool. Every few days, the network looks at all the bootstrap pools and lists the one with the highest value.

THORChain also has an incentive pendulum to ensure a safe balance between providing liquidity and security. The network monitors the chain state and can automatically alter it. Issues could emerge if too much capital is deployed in liquidity pools or if too much capital is bonded by nodes. The optimal chain state involves the value of capital bonded being equal to the value of capital pooled. This consists of a 67–33 balance of RUNE in bonding vs pooling since half of the value pooled is RUNE and the other half is external assets. An inefficient/over-bonded state means more capital is used to secure the chain than the pooled assets are worth. An unsafe/under-bonded state means that pooled capital is higher than bonded capital, meaning it’s more profitable for node operators to work together to steal assets. To fix these states, LP and node rewards are re-balanced to incentivize a capital rebalance.

Competitors & Partnerships

Since native, cross-chain liquidity is a relatively new concept, there aren’t a great deal of direct competitors to THORChain apart from services that have already existed, like traditional bridges and CEXs. THORChain is one of the most advanced of its competitors in terms of its development, but competitors could soon emerge with potentially new technologies.

One competitor is Chainflip, which is not yet live yet but also intends to be a fully independent Proof of Stake network that permits cross-chain swaps. Swap fees are estimated to range from 0.1–0.2%, and the fees will be used to buy and burn FLIP from the Chainflip AMM. FLIP will be initially offered as an ERC-20. It directly competes with THORChain in respect to not using any wrapped assets, including no synthetics, which means that every asset is received on their native chain in a single transaction. Users will be required to own a wallet compatible with each chain, which can also be generated for you if you don’t already own one. It is currently planning to support liquidity between FLIP, Bitcoin, Ethereum, Polkadot, and Solana. Currently, FLIP is not trading, as it’s still in the first stage of its roadmap. This project is very new, so they won’t be a viable competitor for a while considering that THORChain has already conducted its mainnet launch. However, Chainflip could be a serious competitor, especially if it’s natively compatible with Metamask.

The Cosmos ecosystem could provide many viable competitors in the future due to its focus on cross-chain communication of app-specific chains. One competitor is Gravity DEX, which recently had to relaunch as Cosmos-based Crescent chain. They had to rebrand due to not being able to establish themselves as a large DEX player in the Cosmos ecosystem. It originally used the Equivalent Price Swap Model for price consistency and less arbitrage opportunities, but they had to abandon it convert to an order book/AMM DEX model. These major pivots could be a sign for a lack of direction and foresight, and thus weak competition. There’s not a lot of information flowing from the team, and they have a very loose roadmap as of now.

Multichain appears to be a sustainable competitor, with a very similar concept to THORChain as a bridge/AMM combo. It has sustained daily volume of more than $100M and a TVL of almost $2B. However, it is slightly different in the fact that it still relies on wrapped assets. However, it does include cross-chain NFT bridges. Overall, it looks to be a solid competitor, but it seems to be more of an asset bridger/router aggregator rather than a true solution to native cross-chain compatibility due to its reliance on wrapped tokens.

The most viable direct competitor to THORChain that I’ve come across is Stargate. Stargate is a fully-composable, cross-chain bridge that runs on LayerZero. Stargate works to solve the Bridging Trilemma, like THORChain. Bridges strive to achieve instant finality of funds on the destination chain, a single shared source of liquidity between chains, and ability to obtain native or liquid synthetic assets on the destination chain. Stargate has developed a bridging mechanism called Deltabridge along with a balancing algorithm. In Deltabridge, chains share liquidity pools to ensure that each chain has sufficient liquidity, which helps prevent transaction reversion and allows the bridge to achieve instant finality. Unified liquidity pools have the risk of incurring a flood of transactions from the same pair that could drain the pool before all transactions are completed, which would cause widespread reversion. To counter this, Stargate uses a balancing algorithm which manages the pool in a way that prevents it from being exhausted. This appears to be a viable solution, but there is the potential for these pools to be a point of centralization, putting them at risk for an attack. This contrasts with THORChain’s pools, which use TSS to randomly assign multisig signers and bring decentralized control to a potential central point of failure. Stargate has $550.31M TVL at the time of writing, which is higher than THORChain’s $403.22M. While Stargate has the advantage of being EVM-equivalent, using a messaging protocol to communicate across chains, and being overall simpler than THORChain, it has much greater points of centralization risk and only deals with stableswaps, while THORChain can swap any asset pair if there is a LP for it.

THORChain has launched a couple partnerships recently with some big names in the space. As of July 26th, THORSwap DEX is partnering with SushiSwap to launch an Onsen farm for THOR/ETH, which is THORSwap’s token that incentivizes cross-chain trading activity and the accrual of value to RUNE. On December 11th, 2021 they also launched a partnership with OlympusDAO to boost liquidity in their pools and get THORSwap ownership in SushiSwap pools.

Competitive Advantages

THORChain implements impermanent loss protection upon withdrawal, which ensures that you are not worse off being a liquidity provider versus just holding the asset. If impermanent loss is greater than the income received from LPing, then you get paid the difference by THORChain. However, they believe that the income from LPing is so good that they will rarely have to pay out impermanent loss protection. This protection is incremental, meaning that it increases from 0–100% protection over a period of 100 days. If you add liquidity to your pool, then your share of the pool is updated, but your IL protection timer is reset, meaning you need to wait 100 days since the last time you added liquidity to get full protection. While incremental protection ensures that they won’t drain reserves too quickly, if emissions become too great, LP rewards may decrease, which would place greater liability on the treasury to pay out protection, which could be unsustainable and implies a potential for deprecation of this protection.

They also do not having any third-party dependences, meaning that everything from oracles to security to liquidity is managed in-house. Arguably, its largest advantage is that it does not rely on wrapped tokens, meaning you can interact with each connected chain’s tokens natively via cross-chain swaps. Overall, THORChain is much more advanced in the development cycle than its direct competitors having launched its mainnet already. However, the development of cross-chain liquidity protocols is still very new, and there are many viable competitors that are sure to emerge in the coming years.

Quantitative Analysis

As of July 25th, 2022, THORChain’s native token, RUNE, is trading at $2.47, with a market cap of $742,846,799 USD. Its fully diluted market cap is $1,235,000,000. Since it started trading on July 20th, 2019, RUNE has risen from $0.017 to its current price, boasting a gain of 14,429% with an ATH of $20.24 occurring on May 18th, 2021. This vastly outperforms ether’s gains over the same period, sitting at 592% as of the time of writing. RUNE’s 300-day average daily trading volume is $162,213,926, with its primary trading venues being Binance, FTX, KuCoin, Gate.io, Kraken, FMFW.io, Crypto.com, and THORChain DEX. Its beta network, Chaosnet, saw $9.2B in on-chain volume with 3.4M swaps and over 71,000 unique users. The mainnet went live on June 24th, 2022, now focusing on integrating more DEXs and aggregators. The token velocity also comes out to 0.299, which is relatively low. This is a good sign, meaning that most are holding the token for the long-term vision rather than just trying to trade it.

Daily regressions were run against BTC and ETH (independent variable) in order to analyze the relationship between them and RUNE (dependent variable). The residual plots for each regression analysis are shown below.

The regression models show that there is a relatively high correlation between RUNE and BTC and ETH. The BTC regression shows an R square of 0.7737 and an adjusted R square of 0.7735. The ETH regression shows an R square of 0.7854 and an adjusted R square of 0.7852. These close relationships make sense, considering that THORChain is meant to link various networks together, thus they should generally move in a similar manner until THORChain makes some larger developments, boosting adoption of their network. This higher correlation also is a sign that THORChain is recognized by investors to have intrinsic value.

To determine how decentralized the distribution of RUNE is, I calculated a Herfindahl Hirschman Index (HHI) for it. If an asset’s HHI is closer to 10,000, then it is monopolistic. HHI scores over 2,500 indicate a high degree of concentration, 1,500–2,500 is a moderately concentrated asset, and below 1,500 indicates that the distribution of the asset is decentralized and competitive. The HHI for RUNE was calculated from the top 200 wallets, resulting in a score of 1,053, which indicates that RUNE would be a decentralized asset. Since it was only calculated from the top 200 holders, the wholistic score would be slightly greater than this, likely on the high end of competitive or on the low end of moderately concentrated. It is more difficult to calculate HHI for RUNE due to it being a cross-chain token. HHI was calculated from data on native RUNE, but it is important to note that there also exists ERC-20 RUNE and BEP-2 RUNE, which are currently being phased out. It is important to note that the top 10 native RUNE wallets are a reserve, bond, and pool module, a standby reserve, the treasury, two Binance wallets, and some vested wallets. Each wallet holds over 5,000,000 RUNE, which attributes to a higher HHI.

Tokenomics

Upon the launch of THORChain, all tokens were minted at once, a total of 1B RUNE. Tokens were distributed among the developers who bootstrapped the project, as well as through several private funding rounds, then the IDO, etc. The rest of the tokens were locked up in vaults to be distributed on an emissions schedule to liquidity providers and validators, as well as being placed in several reserves for the community. During funding rounds, THORChain raised about $2.5M. Vesting periods are expired, meaning that the market has plenty of liquidity and that price rises have been solely due to demand and expected performance of the project. Staked tokens being released at a certain time is not a concern because validators can exit the set at any time after being churned, yet they will not be able to re-enter the validator set.

The supply is fixed and capped at 500M RUNE. It was initially 1B RUNE, but at the end of the funding rounds, there were a lot of unsold tokens, and the team didn’t want to cause any problems with leftover tokens sitting in vaults or supply shocks. They recognized that RUNE was a settlement token and wanted to minimize its volatility. Four months after mint, Project Surtr was launched, to burn 50% of the total supply. There were two wallets that contained the undistributed RUNE, and the plan was to burn the current month’s undistributed emissions on the 20th of each month. The next months’ emissions would then be unlocked, and the process would repeat after the community voted on the best way to allocate the tokens to the most diverse, aligned group. Project Surtr achieved less emissions, a stronger market in proportion to locked tokens, and adding value to tokens via a supply reduction. Most importantly, all the team, advisor, and seed-funded tokens were burnt by the same amount to prevent market dominance.

As of now, almost 2/3 of the total 500M RUNE are in circulation. Currently the liquid supply is inflationary at a rate of about 9.5% until the cap is reached. 44% of the supply was allocated to emissions, assumed to last for the next 10 years. The block reward is calculated by the following: Block Reward = [reserve/emissionCurve]/ blocksPerYear. The emission curve is designed to start at about 30% APR and target 2% after 10 years, at which point most of the revenue will come from network fees. The reserve that pays out the block reward will be continually topped off by on-chain revenue. THORChain could revisit this model with community input to reduce emissions. This will most likely have to be reduced, especially considering the average LP APY is about 16% and the bonding reward sits at 12%, meaning we will most likely reach the supply cap within 10 years. This is of course dependent on the adoption of the network and the rate at which blocks are produced.

Changes to the network like this are pushed to the network via on-chain governance. THORChain tries to have as little governance involved as possible to provide minimal opportunities for nodes to collude. Governance decides which chains or assets are listed or delisted, when the protocol gets upgraded, and how many nodes can participate. When pushing an upgrade, community developers write new code and propose it via a TIP (THORChain Improvement Proposal). The developer community then decides whether to approve it, the code gets tested and validated by core developers, and then it gets added to the THORNode software. Nodes can then upgrade their software once churned off the network, signaling their support. Once 67% of running nodes upgrade, the TIP is pushed to the network. To reduce the risk of plutocracies, THORChain also plans to implement quadratic voting, which is a great indicator of the core developers wanting as fair of a system as possible.

Chain Profitability

THORChain has outlined their fee structure in their documents, which is created to ensure that the chain remains profitable, even after the entire supply is in circulation. The 10-year emission curve shows a decay in emissions due to their hard supply cap. Therefore, on-chain revenue must eventually be enough to incentivize the ecosystem to continue operating. This on-chain revenue consists of services like THORNames and three types of fees: outbound, slip-based, and network fees.

When users interact with an outbound vault, they pay 3x the stored gas cost for each supported chain. Thus, node operators receive the gas price and LPers receive 2x the observed gas price. This way, node operators don’t pay gas fees out of pocket, liquidity providers earn 1x margin, and the Reserve itself earns 1x margin on the gas fees paid. This fee also helps incentivize LPers, limiting the cost that bears on the Treasury while topping off the Treasury so that even after emissions reach zero, there will still be funds to support the ecosystem.

The CLP algorithm introduces what is called a slip-based fee. This is a liquidity-sensitive fee which considers the demand for tokens in a liquidity pool and the depth of liquidity in that pool. A small order in a highly liquid pair results in a small fee, while a large order in a relatively illiquid pair results in a very high fee. Thus, the pool’s fees can reach equilibrium over time relative to the size of the transactions in the pool. This allows the network to avoid sandwich attacks by heavily increasing the cost to manipulate prices to limit front/back-running. These fees are sent to both node operators and liquidity providers. Additionally, this introduces sustainability when bootstrapping liquidity pools, as new pools with low liquidity can still be highly profitable.

Finally, the network fee is what users pay to conduct transactions on THORChain, at 0.02 RUNE per transaction.

According to THORChain’s Q1 2022 Treasury Report, they currently have about $217M worth of assets to be used for protocol development, technical costs, and grants for the community. Their protocol Reserves have 173M RUNE remaining, which is worth about $2.1B at the time of the report, to be allocated for emissions and other uses. It is important to note, however, that their treasury at the time of this report could pose some risks. $2M in DOGE and $2M in LUNA-UST assets were secured in the first quarter and added to liquidity pools, both of which are assets that held significant risks during the past quarter, whether due to volatility or due to systemic risks in the case of Terra. Due to the lack of a Q2 2022 Treasury Report at the time of writing this analysis, I looked to see the contents of each of the wallets held by the treasury. As of 7/26/2022, the total value of the Treasury is $40,600,713.49. Non-RUNE assets consist of 24% of the allocation, RUNE assets are 39%, and liquidity-provided assets are 37% of the Treasury. They significantly de-risked their Treasury balance sheet since then. They hold much less risky assets as of today, but it looks like they got burned a good amount during the bear market, losing about 80% of their portfolio value. Despite this loss, they currently have no debt/liabilities and do not intend on taking on any debt. Additionally, over the next few months, the treasury plans to hand over the full control of the protocol, GitHub, socials, and the treasury to the community so they can push the protocol towards community ownership.

Recent & Planned Improvements

Many projects have been building on top of THORChain, despite its mainnet launch only occurring a month ago — right in the middle of a bear market. As of now, there multiple cross-chain DEX aggregators including THORSwap, ASGARDEX, Rango Exchange, SKIP, xDeFi, and THORWallet DEX. There are also investment and wallet platforms such as Brokkr, DeFiSpot, Liquality, and Frez Wallet. Additionally, there is support for THORNames, on-chain NFTs, several education platforms, and 13 analytical platforms with more projects to come as THORChain’s community and cross-chain reach develops.

Earlier this month, THORChain activated a “killswitch” at block height 6,500,000 to remove the support for non-native RUNE (BNB.RUNE and ETH.RUNE). These are tokens that are pegged to the value of RUNE which exist on BNB Chain and Ethereum. They have been available for redemption to native RUNE at a 1:1 ratio for 18 months prior to the mainnet launch. The purpose of this was to allow anyone to be able to acquire enough RUNE to launch a THORNode. Otherwise, the THORChain treasury could dictate the genesis node operators, centralizing the network. Support fo these tokes in being phased out by lowering the redemption ratio from 1:1 to 0:1 linearly over a 12-month period to incentivize THORChain mainnet adoption. This means that every 3.65 days, 1% of the outstanding 30M IOU RUNE will be burnt. Most CEXs will switch the tokens over for their customers, but if non-native RUNE is held in a self-custody wallet, the user must create a THORChain wallet and use the upgrade function.

Security was a major issue during the Chaosnet, with multiple attacks being conducted. After a few attacks in quick succession, all supported chains were paused to address these issues. There were several third-party audits conducted to further ensure security, and a bounty program was established to help detect potential issues earlier so that security risks can be mitigated.

According to SamYap from the THORChain Discord, outbound vaults, or Yggdrasil vaults, which only required one signer, were recently replaced by the TSS mechanism. This eliminated the distinction between inbound and outbound vaults, meaning all vaults use TSS. This was done to reduce internal gas fees needed to top up external assets to Yggdrasil vaults.

THORChain has several upcoming developments. It recently integrated Cosmos into its supported ecosystems, and it plans on adding support for Avalanche soon. Additionally, they will modify their native DEX to support an on-chain order book for greater transparency in the exchange of asset pairs. Single-asset staking will also be added to allow for earning yield on assets to become more accessible in contrast to dual asset staking required by current liquidity pools. Furthermore, they are going to launch a stablecoin and are currently revising their strategy in response to the UST implosion.

Proposed Changes & Criticisms

THORChain has been criticized in the past for its founders being completely anonymous. The idea for the project was created during a Binance hackathon in 2018. There is no CEO, and the “team” consists of individuals who were a part of the project’s launch, as well as the THORChain developer community, generating concern surrounding the project’s long-term security. This was feasible in Bitcoin’s case due to its simplicity and autonomous nature, but with THORChain being a much more complicated protocol, there are certain situations, where quick action is required, and an anonymous team might prevent timely actions from being taken. However, the aim for the project is for it to be completely community-driven, which is a plus considering that this chain would, in theory, be managing hundreds of billions of dollars across different chains, and each chain’s values must be represented fairly. While a smaller validator set can be viewed as a point of centralization, quicker decisions can be made by nodes, and the churning function and equal node rewards incentivize decentralization. This is augmented by TSS’s random selection of inbound vault signers and the future inclusion of quadratic voting.

One point of criticism was that the Terra chain support was automatically paused during the Terra collapse due to validator sync issues, according to Sam Yap on Discord. Thus, trading on Terra via THORChain was paused at a time of high volatility. This locked users out of potentially preventing serious losses. However, users quickly realized that this was a function of the protocol, not the team. LPerss were also refunded during the pool “Ragnarok”, a process where the pool is completely shut down, which was voted upon by THORNodes. These LPs were also refunded their impermanent loss, something that is baked into the protocol.

Another criticism that THORChain faces is the fact that all tokens have been minted already and that there is a hard cap on this Proof of Stake chain. There is the potential for hard supply caps, despite being beneficial for token price, to be unsustainable due to the decaying emission schedules providing insufficient incentives for node operators and liquidity providers. While THORChain uses multiple revenue streams to top off reserves and incentivize network participants, only time will tell to see if this is sufficient depending on growth over the coming years. Otherwise, the network may vote to decrease emissions to lengthen the schedule and buy them some more time or hard fork to eliminate the hard cap.

One of the largest concerns brought up by users is the chain’s historical lack of security. During the aptly named Chaosnet, the code was not sufficiently audited, as the protocol initially prioritized speed rather than safety when pushing their code. In July of 2021, a hacker deployed a contract that tricked Bifrost into receiving a deposit of fake assets and then forcing the network to issue them a refund of real assets, resulting in $8M being drained from the Ethereum router. Liquidity providers were subsequently subsidized. A week before that, the router was also drained of 4,000 ether. Supposedly, when writing in Solidity while coding the Ethereum router, programmers were advised against using certain methods to transfer funds, but the team overlooked this to push the code out faster. This hacker turned out to be a partial-white hat hacker, leaving behind an on-chain message for developers:

“Could have taken ETH, BTC, LTC, BNB, and BEP20s if waited. Wanted to teach lesson on minimizing damage. Multiple critical issues. 10% VAR bounty would have prevented this. Disable until audits are complete. Audits are not a nice to have. Do not rush code that controls 9 figures”.

As mentioned before, following these attacks the protocol was audited multiple times. Thankfully, the treasury had enough money to cover the exploit and pay a bounty, but this shaped the community’ view of and the team’s approach to the protocol. THORChain has not been exploited since, which is promising, but it is crucial that the developer community keeps extremely high standards in the security of their code, especially as adoption expands and billions of dollars in cross-chain liquidity are managed from all chains.

Conclusion

Despite its past issues with security, THORChain is a viable solution for native cross-chain swaps, which would greatly aid in solving the issue of fragmented liquidity that we see in today’s crypto markets. This could provide for much more stable markets that could attract adoption and result in more stable prices, instilling more money-like properties in today’s cryptocurrencies. THORChain’s solution is unique in respect to not handling wrapped tokens, and their TSS approach to inbound vault transaction signing allows for a nice balance between speed and security. It also includes many other nice-to-haves which make it more attractive, but some of these might not be sustainable long-term due to their hard cap and reducing emission schedule, depending on if on-chain revenue can support these incentives. If THORChain can continue to keep its security standards high and avoid future exploits, it has great potential to be the underlying liquidity network for these other chains. However, it is important to note that these developments are still very new, and there are several competitors building right now which could outperform THORChain with new approaches to solving for cross-chain liquidity.