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DeFi Sunday: THORChain as a next DeFi promise

THORChain is a new blockchain project that is build on Cosmos SDK, which should serve as a newly built decentralised exchange (DEX). However, this project combines several different technologies together, which brings a nice blend of features and options that help to differentiate it from others.

About THORChain

THORChain has a goal of working as a cryptocurrency network and exchange for swapping different cryptocurrencies across different blockchains. One of its main technology advancements is a Bifrost Protocol, which is a crosschain bridge system that has one main job, which is to connect different chains together.

This model allows for movement across different assets and liquidity pools just by the usage of the RUNE token. RUNE also serves as a source of motivation for liquidity providers, who are receiving this token once they provide liquidity to any given pool, where the AMM is used to swap cryptocurrencies, instead of traditional order books. THORChain, just as many other DEXes, uses automated market maker solution (AMM), where the new native token of this exchange, RUNE, will be used and swapped.

CLPs and RUNE token

THORChain also improved a version of Bancor´s “smart tokens,” which is a technological feature that allows for purchasing and selling of them at any time. In the THORChain protocol, this feature was improved and renamed to Continuous Liquidity Pools (CLPs), and helps with exchange of the given assets and rewards the users that contributed to the liquidity pool. For this, the native token RUNE is used.

The token is therefore not only distributed as a reward for providing liquidity to pools, but it also gives a chance for owners to stake the assets and earn fees that are being accumulated from the different pools. However, this concept is not new, since many different DEXes use it, but it already proved to be an efficient way of distributing the native tokens, as well as making to project interesting for investors and stakers.

History and technological developments

The project officially launched in 2018, just like many other DeFi projects. However, it gained most of the attention late last year and early this year, when several projects of this type, such as Uniswap or Sushiswap, shined. However, one of the biggest flaws of projects of this type is making sure that enough liquidity is provided in the liquidity pools. Without it, swaps and exchanges would not be possible, which is one of the reasons why THORChain decided to used CLPs, where the need to find a buyer or seller is eliminated, leading to efficient swapping without frictions (depending on the liquidity).

Bifrost protocol tree Bifrost protocol tree, Source:

THORChain uses several improvements of already used technologies, which make this project really unique. One of them is for instance Tendermint-based chain, which was already used by Cosmos and helps with capping the number of validators. In combination with Bifrost Protocol, which is a cross-chain bridging system, and with Tendermmint-based chain and CLPs, it creates and secures bridges. Moreover, implementation of Yggdrasil Protocol that uses sharding to help with scaling of the whole project provides necessary speed and low transaction fees. To learn more about these technologies, do not hesitate to follow this link , which explains it much more in depth.

This short introduction to THORChain, just like several our previous “DeFi Sunday” topics, is just a brief explanation of important concepts on a cryptocurrency project connected to decentralized finance that we find interesting. To learn more about it, check its whitepaper or official websites and social media , where you can study more about the possible impact and importance of THORChain.

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