Looking at the latest developments of THORChain from the perspectives of optimism and pessimism liquidity exchange and lending.

Author: Rainy Sleeper

$RUNE is a token that has recently received widespread attention. It has risen due to two positive developments from @THORChain and has become a gathering place for the bulls due to the positive news being implemented.

Today, I hope to analyze the two updates of the protocol from both the Bullish and Bearish perspectives: patterns, flywheels, and risks.


The first update is “Streaming Swap”, which is simply the execution of cross-chain transactions by dividing large orders into smaller orders. This improves the user’s exchange experience (price) and reduces slippage. This feature does not directly affect the token price, as there is a transmission process caused by the increase in data.

Let’s take a look at the data changes in the following graph, which will be more intuitive. After the introduction of Streaming Swap, Thorswap’s data showed a significant increase, but the trading volume started to decline after a brief increase. Whether the impact of Streaming Swap is enduring remains to be seen over time.

Another important feature is Lending, but the Lending feature is more complex, so I will simplify the logic in a longer passage. (If my understanding is incorrect, please correct me.)

To simplify the lending model, we can understand it as follows ⬇️

If we deposit $10 worth of BTC as collateral, Thor will convert it into Tor.BTC. The path is as follows: BTC -> RUNE -> burn RUNE to mint Tor.BTC. If the LTV (Loan-to-Value) is 30%, then we can borrow 3 TOR (accounting unit, 1 TOR = 1u). If we want to borrow 3u of ETH, the protocol will mint 3u of $RUNE and exchange it for $ETH to give to the user. Repayment is calculated based on the borrowed amount in USD, not based on the value of the token.

Next, let’s introduce the most important concept: no liquidation, no interest, and no expiry date.

Why does Thor dare to do this? It’s because it has turned your collateral into $RUNE. It certainly doesn’t need you to repay the loan. Its goal is to minimize your desire to repay by converting your core assets into $RUNE.

When you withdraw the collateral, if the value of $BTC/$RUNE remains unchanged, there is no need for any additional operations. However, if the price of $BTC relative to $RUNE appreciates, Thor needs to mint additional $RUNE to make up for the price difference.

For example, if 10u of $BTC doubles and becomes 20u, and the price of $RUNE remains the same, then it needs to mint an additional 10u (inflation).

Therefore, it actually doesn’t want you to withdraw the collateral. As long as you don’t repay the loan, it can continue to maintain the state of burning $RUNE. (The minimum loan period is 30 days for repayment.)

This is a small flywheel built by Thor.

Of course, Tor.BTC is not completely supported by $RUNE alone, but by 50% $RUNE + 50% $BTC. This reduces the protocol’s risk exposure. In other words, if the collateral appreciates, it only needs to mint half of the $RUNE to repay the collateral.

This is my understanding of the fundamental motivations of no clearing, no interest, and no expiration date – to convert your core assets into protocol-native tokens. From a long perspective, both new products (Streaming Swap increases user trading volume, Lending involves multiple token conversions and also increases trading volume) will increase the trading volume of ThorSwap and the destruction of $RUNE, which is definitely bullish.

Currently, the protocol lending only supports $BTC and $ETH, and support for more Layer1 assets will be added in the future. Lending is also a DeFi Lego of Tor.Asset, and in the future, Thor may launch new products adapted to Tor.Asset to increase the capital utilization of ThorSwap LP.


Since the reason for being bullish is deflation, the main reason for being bearish is the potential risks brought by the lending product to the protocol. Although the protocol can control the size of the debt through circuit breakers, it is also possible to cause excessive inflation of $RUNE during the rising process, especially when $RUNE does not perform well compared to collateral assets (up to 15 million, with a limit of 500 million).

If the upper limit is reached and the collateral assets continue to rise (mainly depending on the ratio of Asset/$RUNE), it will be impolite, and more risks – bad debts will occur. The protocol can only solve bad debt problems through the treasury money.

Essentially, Thor’s Lending module transfers risks to the protocol itself and $RUNE holders. Moreover, Thor’s lending involves several swaps, which will cause significant wear and tear on the lending and is not user-friendly.

At the same time, the protocol controls the loan limit to 500 $RUNE (currently about 7-8 million US dollars), and the loan limit of the protocol will only increase as the number of $RUNE burned increases. With the expansion of the lending scale, it is highly probable that the upper limit of 15 million $RUNE will not be able to meet the occurrence of a bank run.

Although Thor has an upward flywheel, it also risks burying itself in a death spiral – if the newly issued 15 million $RUNE and the treasury funds cannot meet the requirements of a bank run, then Thor will enter a death spiral.

Therefore, we can also understand why Thor’s collateral ratio is set at 200%-500%, not giving users the opportunity for high leverage, and why the protocol reduces the loan-to-value ratio as the collateral increases. But a lower LTV will reduce the adoption of the product, leading to the inability to start the upward flywheel.

Therefore, Lending has become a relatively mediocre product, which does not contribute significantly to the improvement of the protocol, and it is a pity to abandon it when it is tasteless. What else can you do if not bearish?

After reading this analysis, what will be your choice? The red pill or the blue pill?

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