Thorchain: A Summary

Sid Sanghvi
6 min readJun 14, 2022


Photo by Manuel Salinas on Unsplash

What is Thorchain?

Thorchain is an independent blockchain built using the Cosmos SDK. It is the first decentralized cross-chain liquidity pool platform. The first application built on Thorchain is a cross chain DEX. Rune is the protocol’s native token.


The code is audited 9 times. From the likes of CertiK, Gauntlet, Kudelski, IOActive. Most recently in the second half of 2021.

The last 2 audits were catalyzed by the series of hacks (amounting to a ~$30M+) the protocol experienced in mid 2021. While this amount is not existential for a protocol with such a deep treasury, the core devs decided to temporarily shut down the protocol to ensure user funds safety. They went live again in late 2021, and are scheduled for mainnet launch in mid 2022.

Traction (as of March 27th 2022)

24hr Volume = $140M+ | Total Value Locked = $1B+

Total Pool Value Locked
Number of Users

But what exactly does Thorchain do?

In any traditional DEX (may it be Uniswap, Terraswap, Osmosis, Quickswap, etc.), you can only swap between assets native to the chain. For example, Uniswap restricts you to only Ethereum based assets, Quickswap restricts you to only Polygon based assets, you get the point. There are workarounds for using foreign assets (like wBTC or renBTC on Ethereum), but these are not ideal as it forfeits the security of the original chain and becomes dependent on the bridge between the two chains.

Thorchain solves this problem by offering a cross-chain settlement layer. It allows a user to trade directly between native coins. For example, native Bitcoin to native Ethereum. It is built as an AMM, where LPs provide a 50/50 split of token liquidity for an exchange of the swap fees generated (and the swap price is determined by the ratio between the tokens in the pool). Not only does it have multiple frontend UIs (Thorswap, AsgardX, etc.) that provide a familiar experience as compared to any DEX, but also it has started being used as the backend for CeDeFi applications (such as ShapeShift).

How does the backend work?

Thorchain is essentially a vault manager. Node operators run a node on the Thorchain, as well as every other supported chain (effectively providing Thorchain with a wallet address on every chain the Node controls). Thus, once a user makes a transaction, nodes observe the transaction value along with the accompanying business logic, and process it using the Bifrost — Thorchian’s cross-chain bridging protocol.

Once nodes are synced up across all the supported chains, they observe for any wallet activity. If a user initiates a transaction, the thorchain node will record this on the Thorchain. If then a supermajority of nodes verify this observation, the business logic is processed on Thorchain, and the nodes execute the outbound transaction.

In practice, a BTC to ETH swap would look like…

The network’s integrity is held due to the protocol’s simple yet effective economic model. To become a node operator, one must bond a minimum amount of Rune which is determined by a free market bidding process. However, node operators are incentivized to bond/LP, such that the optimal balance of 2:1 ratio is met between bonded and LPd token value. Thus, a rational node operator will not try to fraudulently access the LP capital, as their capital at risk of slashing will always be greater. Thorchain calls this the incentive pendulum.

The incentive pendulum dynamically allocates system income (which comprises Trading Fees and Emissions), between LP rewards and Bonding rewards. For example, if the ratio between capital in LPs to capital bonded is lopsided to the former, the protocol will allocate more system income towards nodes, incentivising them to bond more Rune. And vice versa.

Team & Governance

Due to complexity of the protocol being developed, it remains relatively centralized as of now, with no concrete on-chain or off-chain governance process. The entire team runs in a self-organized manner, with leads for key teams (who hold admin keys to the codebase). While the team started out anonymous, some members have revealed themselves (namely Chad Barraford, tech lead at Thorchain).

In its current state, the protocol makes network upgrades by the following procedure:

  1. Thorchain developers write code and draft a Thorchain Improvement Proposal (a pre decided format for proposing an upgrade)
  2. The rest of the Thorchain developer community collectively approve or reject it.
  3. If approved, the code goes for testing and validation by lead developers.
  4. If accepted, the code gets integrated with the main codebase and all nodes upgrade their software.

Worth noting is Planned Obsolescence. A scheduled upcoming milestone that essentially destroys the admin keys, and hands the protocol to the community. Today, Rune’s only governance function is to signal which chains/assets should be integrated with Thorchain.


Thorchain raised a total of ~$2.5M in token sales via a Private sale, Seed Sale and IDO, in 2018 and 2019. Investors include heavy hitters like Binance, Delphi Digital, Zee Prime Capital, X21, and so on. Others like Multicoin Capital have accumulated Rune in the secondary market.

Rune’s use case is two fold: 1) bonding to become a node operator, and 2) for pairing in the liquidity pools.

Rune’s total supply is ~500M, and is distributed as follows:

  • ~220M as node and LP incentives
  • ~65M for organization’s operations
  • ~60M as community reserves
  • ~50M for the team and advisors
  • ~120M for investors across the seed sale, private sale, and IDO.

The vesting schedule shows that we are at the latter stages of an aggressive phase of token unlocks. Thus it is unlikely to see selling pressure from this in the near term.


As the fundamental building block of DeFi is the liquidity pool, the protocol’s long term plan is to be the back end for all cross-chain DeFi activities. They have recently launched Synth — Synthetic assets backed 100% by liquidity pools. Which will serve as the backbone for future products such as low cost & fast execution trading, cross chain borrowing and lending, indexing, and cross chain savings accounts


It should be assumed that the author either has owned, currently owns, and/or will own all tokens mentioned in this document. Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. This presentation contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third party sources. The author does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.



Sid Sanghvi