THORChain (RUNE)

RUNE is the base currency and is required to be provided along side every asset in pools.

Without a native settlement currency, each asset would need to be pooled with every other asset, which would eventually result in hundreds of new pools to be created for just one new asset, diluting liquidity.

If THORChain supported 1,000 chains, it would only need 1,000 pools. A competitor would need a whopping 499,500 pools… try to make those deep and useful.

Illiquid pools are the enemy (ᚱ) RUNE fights.

Since (ᚱ) RUNE is bonded to assets in its pools, then as the value of those assets increase, then the (ᚱ) RUNE value will also increase.

This means the system can become "aware" of the value of the assets it is trying to secure.

Once it is aware of the value of the assets it is securing, it can use incentives to ensure security of those assets.(ᚱ) RUNE is worth 3X the value pooled of assets like BTC, ETH or BNB in its network

It’s Used by Nodes as Bond

Sybil-resistance refers to the ability to prevent someone masquarading as many identities in order to overcome a network.

THORChain could be called a Proof of Bond network. In THORChain the nodes commit a (ᚱ) RUNE bond i.e. minimum of 1,000,000 (ᚱ) RUNE in order to be churned into the network.

If the node attempts to steal assets, then their bond is deducted to the amount of the assets they stole (1.5X), and the pools are made whole. Additionally, nodes have to perform a lot of mandatory services, else their (ᚱ) RUNE bond is deducted.

It’s Used to Secure Assets

The Incentive Pendulum ensures that nodes are incentivised to continually buy and bond enough (ᚱ) RUNE each time to maximise their gains - which is a maximum when there is 67% of RUNE bonded and 33% pooled in pools. If the pools are holding $1M in capital, then the value of RUNE in the aggregrate bond is $2M. Thus all assets can be underwritten.

The bond is extremely liquid - any (ᚱ) RUNE holder can immediately enter or exit their position since (ᚱ) RUNE is the settlement asset in all pools. Thus, when a node churns in, the cost basis of their bond is known to them and not an arbitrary "paper" figure. This means a node bonding $1M in RUNE will never contemplate making a decision to steal <$1M in capital from the network, else they will lose overall.

It Signals Listing and Delisting

While THORChain strives to be governance-minimal, there are some parts of the protocol that use committed capital to signal priority. This is the case for the asset listing process, where every three days a new asset can be listed as a pool. In a queue of standby assets, the one with the deepest commitment of RUNE is the one that is listed first.

Additionally, if a connected chain is no longer economically valuable, then all Liquidity Providers in that chain can leave. If a pool is empty, it will be delisted, and this will cause the network to immediately sever ties with that chain in a process called a "ragnarok".

It Incentivizes The Network

(ᚱ) RUNE is the native currency of THORChain and is consumed as transaction fees on the network. All swaps are charged both a fixed network fee, as well as a dynamic slip-based fee. This prevents various attack paths such as denial-of-service attacks, as well as sandwich attacks on a pool.

The network continually consumes gas as it makes transactions. Nodes are free to use at-will the base assets BNB.BNB, ETH.ETH, BTC.BTC, etc in order to pay for gas. These assets are used directly from the vaults. THORChain then observes outgoing transactions, reports on the gas used, and then pays back the Liquidity Providers in those pools to the value of twice the amount of gas used, in (ᚱ) RUNE.

After fees are charged and gas is subsidised, THORChain computes the block reward, divides it based on the Incentive Pendulum algorithm, and then pays out to Bonders and Liquidity Providers.

This drives Nodes to bond the optimal amount, and pays Liquidity Providers for their contribution of liquidity.

It Amplifies the Pooled Assets

The price of assets is decided by the exchange which is most liquid. It’s also the reason why THORChain will set its own price, as it (ᚱ) RUNE will be most liquid within its own network.

(ᚱ) RUNE will pull in liquidity from every corner of the cryptosphere, creating incredibly deep pools. Eventually these pools will become so liquid they’ll start to affect the price of the paired asset in the same way as BTC and ETH currently do.

This phenomenon will first be observed on pooled assets which are very illiquid outside of THORChain. Larger market cap assets will follow once the liquidity pools become deeper.