What is THORChain (RUNE)? Your ultimate guide

What is THORChain (RUNE)? It is a coin that powers a decentralised exchange

A depiction of a THORChain (RUNE)                                 
THORChain aims to transform how people buy, sell, and trade cryptocurrency – Photo: Shutterstock
                                

If you have been taking a dive into the world of cryptocurrency, there is a good chance you will have seen references to the thorchain (RUNE) coin.

But what is thorchain? What system is it on? How does thorchain work? What is thorchain coin used for? In short, it involves transactions across separate blockchains but there is more to it than that. The coin powers a system called THORChain, which aims to transform how people buy, sell, and trade cryptocurrency. 

Before we look at THORChain, we need to talk about decentralised finance, or DeFi for short, and how it relates to what the network is aiming for.

Decentralised finance

Decentralised finance is the idea that ultimately powers cryptocurrency. There are a lot of people in the world who do not have a bank account roughly 1.7 billion in 2017, according to the World Bank – but a good proportion of those people have access to a mobile phone.

DeFi means that people can access banking services online without having an actual bank account. Supporters of decentralised finance believe this will promote financial inclusion and help reduce poverty. DeFi is intended to create a fairer, more open, version of traditional financial services. 

If we follow the thinking of DeFi enthusiasts, it is logical to believe that the more decentralised something in the financial realm is, the better. What if something that was already removed from traditional finance, like cryptocurrency, was made even more decentralised?

This idea gives us decentralised exchanges, or dex. Some crypto enthusiasts think that traditional cryptocurrency exchanges have a bit too much power. If a big exchange doesn't deal in a particular crypto then that coin will have fewer users for what might be seen as an arbitrary reason.

There is also concern about exchange commission fees being too high, as well privacy issues with credit checks. As a result some decentralised exchanges have been set up, of which THORChain is one.

Decentralised exchanges

The THORChain system does something that a lot of decentralised exchanges do not do, though, which is what might make it an attractive proposition.

There are a lot of cryptocurrencies out there, but there are also a lot of different blockchains. While it is relatively easy to trade crypto tokens that exist on a particular blockchain, it can be hard to do the same thing when they exist on different blockchains.

This has been an issue for decentralised exchanges and is something that gives traditional exchanges an advantage. That isn’t to say that dex can’t deal with cryptos on another blockchain, though. In many cases, the coins and tokens are wrapped. This means they are modified so they can be used on a chain where they are not native.

A good example of this would be bitcoin. While BTC is the biggest cryptocurrency, it is potentially limited by being on the Bitcoin blockchain. While the Ethereum blockchain allows for a lot of DeFi uses for tokens, Bitcoin doesn’t.

However, since bitcoin is the single largest crypto, it would be useful if there were a version of BTC that worked on Ethereum. To do this, you could create a token that matches the value of BTC. Such a token does exist, and is called wrapped bitcoin, or wBTC.

While this allows people to carry out financial activity, such as making loans, using bitcoin on Ethereum, it also has its issues. For wBTC to work, it needs someone or something to manage it and make sure it is pegged to bitcoin, which means that it is, in effect, centralised, rather defeating the point of decentralised finance.

You can create protocols that are a bit more open, but these can be limited in use and somewhat complicated.

THORChain

With these problems, there has to be a solution, which is where, at least in theory, THORChain comes in. To use the technical term, THORChain is a decentralised liquidity exchange.

This means you can use the system to create liquidity pools. These are collections of cryptocurrency locked into smart contracts – computer programs that are automatically executed when certain conditions are met. Liquidity pools help a commodity be bought and sold at a price that reflects its current market value. 

In THORChain, which is operated on a separate blockchain on the Cosmos network before transferring to its own mainnet in April 2021, there are no order books used to set prices. Instead, prices reflect the amount of a particular asset within the system’s crypto liquidity pools.

This means the project is very much decentralised. People can buy and sell crypto in THORChain without having to worry about who is setting the prices. It can be argued that, in the network’s case, this creates pure market conditions without any interference from outside forces in setting prices – a goal for some crypto enthusiasts. 

THORChain, like many crypto ecosystems, uses groups of computers, or nodes, to help things run smoothly. Each node on the network consists of the THORChain protocol itself, a node for the blockchain it is aiming to connect to, and something called Bifrost. Bifrost serves as a connection protocol to link the network to other blockchains. 

RUNE

The RUNE coin is the native coin of the THORChain network. It can be used to power nodes, with each node needing to commit a bond of one million RUNE to take part in the consensus process.

This, in effect, means the thorchain cryptocurrency uses a modified Proof of Stake consensus method known as Proof of Bond. It is, however, possibile to run a smaller node without having to commit such a large amount of thorchain (RUNE), though, in this case the node can still validate a transaction, it just can’t sign it off.

The thorchain cryptocurrency is also used to help fill up liquidity pools and can be used for network governance. Rewards for activity on THORChain are paid out in RUNE. People might want to buy the coin if they think that the system has potential in the world of dex, or if they are fans of decentralisation in general.

THORChain does not have any named founders, nor does it have any named people in charge of the network. This is in keeping with its commitment to the decentralisation of crypto exchanges.

RUNE coin was first launched on the open market in 2019, although the system was founded in 2018. At present, there are 258,210,215.14 RUNE in circulation out of a total supply of 461,668,422, according to CoinMarketCap. The RUNE price stands at $10.47 as of 2 December 2021.

FAQs

At present, there are 258,210,215.14 RUNE in circulation out of a total supply of 461,668,422.

Both THORChain and thorchain were created by a group of anonymous developers.

According to its white paper “The design goal of THORChain is such that anyone can join the network with the required funds (permissionless) *and be anonymous*, yet still be secure.”

Further reading

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