1. Report Overview

1.1 Investment Logic

From the business development perspective, the Thorchain project shows strong momentum, with token economics deeply integrated with its native token. The growth of TVL is directly correlated with the value of RUNE, and it is expected that the upward trend in the market will drive the corresponding growth of $RUNE, further expanding its business scale. Additionally, when comparing capital, ecosystem, and market attention with other projects in the same sector, Thorchain’s overall development surpasses that of similar projects. Therefore, Thorchain is a relatively outstanding investment target with considerable probability.

1.2 Valuation Explanation

At the peak of the previous bull market, the market capitalization of RUNE was $4.6 billion, leaving roughly a 4x potential upside. Furthermore, Thorchain’s investment by Multicoin Capital demonstrates the recognition of its economic operation’s flywheel effect by VCs. In the new bull market cycle, with the flywheel effect operating normally and assuming no hacks occur, its TVL will experience significant growth, driving positive demand growth for RUNE and potentially resulting in a 5–10x growth space.

1.3 Key Risks

While Thorchain has high potential for upward movement, it still carries significant risks, primarily in the technical and market aspects:

Technical Risk

Thorchain’s essence lies in its cross-chain liquidity protocol, and cross-chain bridges have always been a prime target for hacker attacks. Thorchain not only encompasses cross-chain swaps but also includes synthetics, account savings, multi-stage swaps, PoL, and lending, making its functionality complex and thereby increasing the risk of vulnerability-related technical issues. Currently, Thorchain’s corresponding solution involves specialized security teams monitoring network anomalies, including node suspensions, bounties, transaction throttling, and thorsec team intervention.

Market Risk

Lending accounts are sensitive to the price of RUNE. While the protocol performs well when the price of RUNE exceeds that of non-RUNE assets, a decline in RUNE’s price could potentially trigger a cascade of loan repayments. Moreover, in the design of the lending business, the protocol’s preference for RUNE collateral over BTC and ETH further amplifies market risk.

2. Project Basic Information

Thorchain is a decentralized cross-chain AMM trading protocol created by a group of anonymous cryptocurrency developers at the Binance Hackathon in 2018. Its goal is to decentralize cryptocurrency liquidity through a public ThorNode and ecosystem product network. Any individual, product, or institution can utilize its native and cross-chain liquidity.

2.1 Scope

The Thorchain project primarily targets native cross-chain swaps, catering to users with a demand for native cross-chain functionality. These users are typically large capital users or institutions.

2.2 The Team

The team behind Thorchain remains anonymous, and as such, public team information is unavailable. The anonymity of the team can be considered a characteristic or risk factor of the Thorchain project.

2.3 Investment Backgrounds

In terms of financing, the project has received investments from Multicoin as well as the highly capable engineering team at Delphi Digital. However, the specific amount of funding has not been disclosed. Considering the anonymity of the team, it does not rule out the possibility of deep involvement from the investors. Besides, the project has undergone multiple Initial Exchange Offerings (IEOs), with participants receiving significant returns exceeding one hundredfold.

2.4 Project Development Roadmap

3. Product & Business Situation

3.1 Code & Product

On August 21st, 2023, Thorchain developed its cross-chain lending business. Thorchain’s lending service differs significantly from projects like Aave in its logic, featuring characteristics such as no liquidation, no interest, and no maturity date.

Thorchain Lend is designed similarly to UST & LUNA, where users can borrow assets without the obligation to repay the debt or pay interest, and there is no maturity date. The process of opening a position is as follows:

Loan Open Process

First, the user needs to deposit BTC as collateral into the BTC Pool, which will directly convert our tokens into RUNE within the BTC Pool.

Next, the user places the RUNE into the virtual pool for burning. In the V BTC Pool, synthetic assets THOR.BTC will be generated, and RUNE will be minted.

Finally, in the USDT Pool, corresponding RUNE will be swapped for USDT worth the borrowed BTC value for the user, with the swap fees going to the LP.

Assuming that a user has 2 BTC and the current collateral ratio is 200%, and the user wants to borrow 1 BTC worth of USDT:

Synthetic asset 1.998 THOR.TOR (THOR.TOR is the unit for calculating USD value) will be generated and placed into the V TOR Pool. Then, 0.996 BTC worth of USDT will be swapped out from the USDT Pool for the user.

The value of burnt RUNE = Collateral value (2 BTC) — Debt (0.996 BTC) + Fee wear and tear. From the borrowing perspective, the system will additionally burn about 1/CR of the value in RUNE (assuming the RUNE price remains unchanged).

Loan Close Process

First, deposit USDT into the USDT Pool to swap for RUNE, then exchange it from the virtual pool for THOR.TOR and transfer it to the lending module for repayment.

Next, withdraw the synthetic asset THOR.BTC and place it into the V BTC Pool, minting RUNE.

Finally, use RUNE to swap for BTC assets in the BTC Pool.

The value of minted RUNE = Collateral value (1.998 BTC) — Debt (0.996 BTC) + Fee wear and tear. From the repayment perspective, the system will additionally mint about 1/CR of the value in RUNE (assuming the RUNE price remains unchanged).

From the borrowing and repayment process perspective, a total of 8 transactions are involved, each incurring fees. Both the assets borrowed and the collateral assets repaid will experience wear and tear. This means that the more active the trading, the more RUNE will be burned. The lending business is directly linked to the DEX, and it indirectly creates demand for both the DEX and RUNE.

Furthermore, the Borrower is essentially shorting USD and longing collateral assets (conversely, the protocol is longing USD and shorting collateral assets). Our lending pool does not consist of typical collateral assets like AAVE; instead, it comprises synthetic assets that are created out of thin air, essentially serving as vouchers, with conversions facilitated by RUNE and fees collected. Consequently, there’s no liquidation mechanism because our BTC, when entered into the lending business, has already been sold; nor are there interest rates, as interest is collected in the form of transaction fees, with the lending module essentially acting as the counterparty to users.

The counterparty to borrowing users is the holders of RUNE, who ideally wish for users to borrow without repayment, as this decreases the circulating supply of RUNE. However, when users do repay, it results in an increase in the circulating supply of RUNE. Typically, users are motivated to repay when the value of their collateral assets is bullish; otherwise, they have little incentive to do so. Since RUNE is essentially used as a trading medium to exchange assets lent out in the trading pool, LPs in the trading pool can be understood as loan providers.

Additional Borrowing Details:

- Even if the current collateral asset price increases, users cannot borrow more; they can only borrow again using new collateral assets.

- Users can repay part of the debt, but only when all debts are repaid can collateral assets be exchanged.

- Currently, there is a 30-day collateral lock-up period before repayment, subject to protocol changes.

- If the value of RUNE relative to BTC remains unchanged between loan initiation and completion, there will be no net inflationary impact on $RUNE (the destroyed amount will be equal to the minted amount minus transaction fees).

- If the value of collateral relative to RUNE increases between loan initiation and completion, there will be a net inflation in $RUNE supply.

3.2 Official Website Data

The daily average website traffic is below 5,000 visits, with the main sources of traffic being the United States, Malaysia, and Russia. Considering the actual circumstances, this data may not be entirely accurate and just for reference.

3.3 Social Media Data

The project’s social media presence is not comprehensive. Developers occasionally participate in AMA sessions, but they do so anonymously.

3.4 Community Data

4. Business Analysis

4.1 Scale & Potential

In the cross-chain swap sector, other projects based on Cosmos such as Injective and Kujira have TVL and coin prices that were close to AHT last month, posing risks of overvaluation. However, the market generally views the development of cross-chain applications within the Cosmos ecosystem favorably, giving these projects strong potential for growth.

4.2 Competitive Landscape

For now, Thorchain’s competitors include Injective, Kujira, and Chainflip, outlined as follows:

The main differences among these projects lie in their token economics. However, all these projects focus on providing cross-chain liquidity. Comparatively, Thorchain may be a more suitable investment target.

5. Token Circulation & Distribution

5.1 Total & Circulating Supply

The total token supply is 500 million. Currently, all tokens are in circulation, but there are a total of 200 million tokens staked. Therefore, the actual circulating supply in the market is 300 million tokens.

5.2 Distribution, Staking & Release conditions

Regarding the distribution of RUNE tokens, liquidity release is a key aspect. Currently, all tokens have been fully circulated, but close to one hundred million tokens are staked, and two hundred million tokens are held by the team as reserves for emergency needs.

5.3 Token Operational Mechanism

Among these, RUNE tokens directly participate in the operation of lending businesses. As a result, the value of RUNE required in the network is three times the locked non-RUNE asset value. For instance, if $1,000,000 worth of non-RUNE tokens are deposited into Thorchain, the market value of RUNE will be at least $3,000,000. This is just the minimum or deterministic value of RUNE.

5.4 Expected Market Performance

Currently, the token RUNE is priced at $5.93, ranked #56 on Coingecko, with a market capitalization of $1.778 billion and a FDV of $2.958 billion. Due to the 1:3 minimum mechanism, the market capitalization of the RUNE token will have a basic support. As the prices of assets such as ETH and BTC rise, assuming the coin standard remains unchanged, the support price of RUNE will also increase by 1:3 in line with the price increases of ETH and BTC. Additionally, as the protocol is utilized, the quantity of RUNE will also decrease to some extent.

6. Investment Value Assessment

Currently, the Thorchain project is in a mature stage. Due to the robust token economics and market attention, it is poised to benefit from overall market uptrends, with a high probability of performing well in upward trends.

In the medium/long term, as long as the market capitalization of BTC and ETH rises, its TVL will inevitably increase, driving up the price of the RUNE token. With the emergence of more use cases, the potential for RUNE to outperform BTC and ETH is significant. It may be considered to gradually accumulate positions within a suitable range during periods of consolidation.

7. Summary

Thorchain features token economics deeply tied to its native token. The growth of TVL will directly impact the value of the RUNE token, with the expected increase in the value of BTC and ETH driving corresponding growth in RUNE. Comparing Thorchain with other projects in the same sector from the perspectives of capital, ecosystem, and market, Thorchain’s overall development is superior to similar projects. Furthermore, as Thorchain’s business scale expands and its token economics, order book, and futures trading further improve, RUNE is highly likely to show even more promising performance in the future. It is an investment worth long-term attention.

Note: All of the above opinions are not investment advice. If there are any inappropriate points, please feel free to leave a message to correct them.

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