Almost twelve years have passed since the emergence of Bitcoin. It has gained more than %10000 on market cap, yet it is still in its early days to cater to the needs of eight billion people. The world needed tradable, safe, immutable money that could potentially transform global finances, and Bitcoin responded to this need.
However, still, there were many issues to be dealt with. One was the decentralization of exchanges. A centralized exchange can never perform outside the permission of the governments. Bitcoin’s promise will be forever lost without an independent, decentralized exchange. Since 2014, decentralized exchanges have been emerging.
By 2017, there were functional decentralized exchanges worldwide that could cater to the needs of traders. By early 2020, Uniswap achieved an impressive scale. Decentralized exchanges became a reality, and many others raced towards creating better, more functional, scalable trading platforms.
Thorchain, an immutable decentralized exchange
To put it in a nutshell, Thorchain is quite like Uniswap, but it’s multi-chain. On Thorchain, it’s possible to trade one digital asset on one particular chain with another digital asset on another chain in a frictionless, decentralized, trust-minimized environment. There are no custodians or wrapping processes in between.
Thorchain also makes it possible to earn yields on digital assets.
The real multi-chain main net version of Thorchain launched in April 2021. It supports native Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Binance Chain, and Tether. Unlike any other decentralized exchange, these assets are not wrapped.
Thorchain Stands out
When traders make a trade, they send in Coin A and receive Coin B from a liquidity pool. The liquidity pool consists of the deposits made by users on the platform to earn yields based on trading fees. This is what happens in any exchange. For example, in Uniswap, there are two main user groups.
First, the liquidity providers are the users who deposit assets like Bitcoin and Ethereum into liquidity pools. In return, they gradually earn yields.
The second group consists of the traders who desire to exchange one particular digital asset for another—for example, Bitcoin to Ethereum. On Thorchain, however, there is a third group present. And that’s what makes Thorchain stand out among other decentralized exchanges. This third user group is called Thorchain Nodes.
The third group of users on Thorchain are node operators. These users run Thor nodes, which involve Thorchain nodes and a node for each supported chain.
To simplify the explanation, Thorchain nodes are like tiny fragments of the wallets of a decentralized exchange.
This way, a central custodian does not control liquidity pools and wallets. Instead, a multi-signature arrangement of Thorchain nodes ensures the smooth, secure operations of Thorchain decentralized exchange. Currently, there are around 35 validating nodes present in the ecosystem, and this number is expected to grow to 100 in the near future. The only requirement to be a validating node is to outbid others for the privilege.
There are no licenses or special privileges to become a validating node. Standard nodes that don’t sign transactions are always present so that everybody can have the chain data verified without the need for a third party in the ecosystem.
Billions of dollars of Bitcoin and other digital assets are being controlled by node operators in the Thorchain system. The system uses financial incentive strategies to establish trust between anonymous node operators and users. This is where Thorchain Token (RUNE) comes into play.
Rune is the native token of Thorchain, and it is integral to the design of this system. RUNE has several roles in the network. It is used for Thorchain governance and voting. It is the asset in which fees are charged to traders and paid to validators and liquidity providers.
Furthermore, validating Thor nodes must use RUNE to post bonds for the privilege.
Thorchain ensures the security of the network using bonds and proof-of-bond strategies. By posting bonds, Thorchain keeps validating Thorchain nodes’ honesty, penalizing them for misbehavior.
Thorchain uses its own native token instead of an external asset such as BTC or ETH because the network needed to consider the risks of a Sybil Attack Problem. This particular attack is related to the security of liquidity pools.
In the case of an attack, the attacker gains a considerable sum of external assets if the system had to use a token other than RUNE. Alternatively, the attacker would not gain as much if the system used RUNE because the native token plummets to zero the second Thorchain gets hacked or successfully penetrated.
Thorchain and its well-thought strategies are on the way to transforming the way digital asset pairs are traded. Large cross-chain markets are now highly liquid, borderless, decentralized, open-source, and immutable.