Compared with the prosperity of the Bitcoin ecosystem and the sudden rise of the AI sector, Ethereum Defi projects seemed to be lacking momentum in this round of bull market. However, there is one product that has been quietly making progress, rising more than quadrupled from the lowest point this year and more than sixfold from the annual low. It is the most handsome guy in current Defi - Thorchain, the cross-chain DEX protocol.

This week, Dr.DODO will introduce what exactly Thorchain is and what updates it has made, as well as other noteworthy projects in the cross-chain DEX track besides Thorchain.

What is Thorchain?

Thorchain can be said to be one of the oldest on-chain DeFi projects. The team was formed in 2018 and the product went live in 2019. It has experienced multiple hacker attack events, but with the strong support of its powerful team and loyal community, Thorchain continues to deliver to this day and has squeezed into the top 50 blue chip projects by market value.

Thorchain's main business is a decentralized cross-chain AMM, allowing users to exchange and trade different blockchain assets directly without trusting third-party institutions. Unlike centralized exchanges, Thorchain runs on a specially designed trustless protocol. Users only need to deposit trading funds into the liquidity pool to exchange cross-chain assets without friction loss. And unlike cross-chain bridges, Thorchain provides native asset cross-chain instead of wrapped tokens. Thorchain used Cosmos SDK to build a blockchain and create multiple native tokens (BTC, ETH) and Thorchain token $RUNE AMM pools through its protocol. When users cross-chain, they actually get native assets on the target chain by SWAPping Rune with native tokens on different blockchains.

Technically, Thorchain uses advanced cross-chain message passing systems and custom Byzantine fault tolerance algorithms. It has continuously improved security in cross-chain message passing after being hacked multiple times, and is seen as one of the most promising cross-chain infrastructure with great potential, solving the pain points of cross-chain asset liquidity and transaction efficiency issues, and becoming the channel with the best BTC-ETH cross-chain liquidity on-chain so far.

What are the Thorchain updates?

Thorchain has undergone two major updates this year. The first is the introduction of the Streaming Swaps mechanism, which allows users to instantly exchange large amounts of cross-chain assets without being limited by the lack of liquidity that has led to scarce usage. Let me briefly introduce how Streaming Swap mainly works when a user uses it:

1. The user initiates a large cross-chain exchange, e.g. 10 BTC to 3000 ETH.

2. The protocol splits this exchange into multiple small Streaming Swaps in units of 0.1 BTC.

3. After each execution of a streaming swap of 0.1 BTC for about 30 ETH, ETH is immediately sent to the user.

4. Continue streaming swaps until all 10 BTC are exchanged for 3000 ETH.

This streaming swap mechanism achieves immediate settlement of large-scale exchanges, reduces slippage losses, improves capital efficiency, and enhances the protocol's ability to withstand saturation attacks.

From the data, there has been significant growth in trading data since Streaming Swap went online in the third quarter of this year, with BTC trading pairs still accounting for most of the trading volume.

Another major update is Thorchain Lending, which has been discussed on the forum for nearly two years, has finally officially launched. Thorchain Lending features lending products with no interest, no forced liquidation, and no maturity date. It can provide users with lending and leverage needs. But how is no interest, no forced liquidation, and no maturity date achieved?

The main reasons are:

1. Interest comes from staking asset yields, not borrower payments, so interest-free lending is achieved.

2. The additional collateral ratio is as high as 150-250% with low liquidation risk. Liquidation decisions are fully based on smart contracts and protocol rules without human intervention.

3. Borrowers only need to continuously replenish collateral to use borrowed funds for a long term, so there is no maturity date pressure. The loan period is only constrained by the collateral survival period.

4. Users stake ETH to get stablecoin loans. ETH generates income through liquidity mining, which can offset borrowing costs and achieve net income.

5. Liquidation comes from collateral premium transfer without requiring the borrower to actively take risks, keeping it under control.

The Thorchain Saver Vault launched along with Lending can also further increase Thorchain's TVL. Saver Vault allows DeFi users to deposit native tokens without having to bear $Rune fluctuations. It can effectively attract users to deposit assets and further provide asset sources for long-term collateral in Lending.

Competitive Product - Maya

Maya Protocol is a decentralized cross-chain protocol built on top of Thorchain. Launched this March, it is a friendly fork project of Thorchain and supported by the Thorchain community. The cross-chain AMM mechanism is very different from Thorchain, with the main differences:

1. As Thorchain's friendly fork, Maya's goal is not to replace but to enhance Thorchain, providing backup support and elasticity for decentralized infrastructure, like how a twin-engine plane can improve reliability.

2. Maya introduced some unique designs for capital efficiency, security and value capture such as liquidity nodes, dual token mechanism, and impermanent loss protection.

3. Maya also plans to support more public chains like Arbitrum, Cardano and smart contract chains Aztec to help expand the entire cross-chain ecosystem.

4. Through collaboration, some functionality integrations have also been achieved, such as one-click cross-platform aggregated trading and streaming swaps. Users can seamlessly operate between the two platforms.

In summary, Maya and Thorchain have built a complementary cross-chain alliance to overcome the limitations of a single solution and jointly promote the development of decentralized finance.

Competitive Product - ChainFlip

Unlike Maya Protocol which is a community fork project, ChainFlip is backed by mega funding rounds - it has raised $16 million in 2021 and 2022 led by Framework Ventures with participation from Blockchain Capital and Pantera Capital. It finally launched mainnet this year but its product is not yet open.

Chainflip positions itself as a blended decentralized trading protocol that allows seamless value transfer between any blockchain (including BTC, EVM, and layer 1s). It tries to combine the advantages of centralized exchanges and DEXs to achieve efficient asset trading and risk management.

In addition, its biggest selling point is the Jit AMM mechanism design, which maximally reduces slippage and provides accurate pricing to solve cross-chain challenges. This addresses the disadvantage in Thorchain where liquidity providers have to bear huge gratuitous losses. It allows market makers to provide one-sided liquidity. Chainflip also improves on Thorchain’s user experience which requires installing a specific wallet. Chainflip supports users to convert value on any chain using ordinary wallets.

In summary, Chainflip claims to have a better product experience and design compared to Thorchain, but although its mainnet has launched, its main cross-chain DEX product has not opened for use. Whether it can effectively attract TVL will be a major key to the long-term survival of the product going forward, especially since Thorchain has cultivated this track for years. It will take considerable effort to grab market share in this area.

Author’s Perspective

@Scott

I analyze from a trading perspective here. We first added $RUNE to our watchlist because the Bitcoin maxis outbreak in May. At the time I combed through the Bitcoin ecosystem and added ThorChain, Bitcoin’s native cross-chain DEX, to the list. Also, ThorChain is built on COSMOS SDK. With the hype around the COSMOS ecosystem projects like TIA, INJ, KUJI in the past month, funds have also paid attention to speculation around the COSMOS ecosystem. So ThorChain gets to benefit from both the Bitcoin and COSMOS ecosystems.

Next is ThorChain’s economic model’s strong value capture capability, first mover advantage, and the team’s active innovation during the bear market bottom - the Streaming Swaps and “Ponzi” lending introduced in July and August sparked market discussion and attention, and also paved the way for bull market TVL and volume growth. As a result, it has demonstrated strong Alpha capabilities among Bitcoin and COSMOS ecosystem tracks.

The later competitors Maya Protocol and ChainFlip that came out also provided valuation benchmarks. At that time many on Twitter were doing comparable valuation analysis based on price multiples, concluding that they need to run for $CACAO and $FLIP. When more and more new competing projects emerge in the market, new projects can break through barriers posed by old projects through higher token incentives. This is also a very interesting aspect of Web3 political economy. At the same time, the appearance of more competitors will divert investor attention. Therefore, we will now appropriately reduce positions in combination with some on-chain indicators.

@dt

In my opinion, under the current trending hotspot of the thriving Bitcoin ecosystem development, the demand for cross-chain capabilities between ETH and other vibrant EVM public chains like Solana with the Bitcoin mainnet will become increasingly strong. Cross-chain DEX is indeed a business that climbs upwards, but this wave of Rune's big rise is more biased towards the launch of Thorchain Lending, which gives Rune more use cases and can effectively burn coins to cause the flywheel effect. It is not purely driven by the demand for cross-chain DEX business growth that led to such an increase.

But in the current market atmosphere of high sentiment, it is quite normal logic for token rotation of similar concepts in the short term. In the long run, I would focus more on Thorchain itself, because personally I think Thorchain’s success has a lot to do with the fact that the project team has a very strong connection with the community, as can be seen from much of the educational content, much of which comes from the hands of the community. And after being hacked many times it still persists tirelessly, proving the determination of its team. Therefore, in this field, Thorchain is definitely the undisputed leader and will continue to be so in the short term.