Intro to ThorChain
Market Meditations | March 24, 2022
The price of RUNE, the native DEX token of THORChain, has appreciated over 40% following its launch of synthetic trading assets on March 9th.
As expected, THORChain’s total TVL is very close to RUNE’s price action. On the heels of the introduction of Synths, RUNE took a major step to the upside as money poured into the protocol.
THORChain’s cross-chain Decentralized Exchange (DEX), THORSwap, added synthetic versions of major tokens like Bitcoin, Ethereum and Litecoin among others earlier this month.
TIP! Synthetic Assets mirror real-world assets like gold and stocks, or in THORChain’s case – native cryptocurrencies. Their value is pegged to the underlying asset and takes a synthetic form represented by a token.
THORSwap also features several other DeFi staples, like liquidity pools and farming, but today we’re looking at minting synths to take advantage of much lower fees and transaction times while moving in and out of positions.
Users on THORSwap interact with the protocol through the following steps.
- Visit THORSwap to connect your wallet in the top right corner of the screen.
- After getting connected, pick whatever asset you’d like to mint and click appropriately. By completing this process, you will turn your native asset, BTC in this case, into a synthetic version tradeable on the THORSwap DEX.
TIP! The transaction fee will be denominated and paid by the native asset. Transaction fees are usually much higher for minting a Synth than swapping.
- After minting the synthetic version of your preferred underlying asset, you’re free to enjoy low transaction fees and fast transaction speeds. Arbitrageurs and traders value these upsides to quickly seize narrow windows of opportunity.
There are no guarantees in DeFi. Always do your own research and never invest more capital than you can afford to lose.
As previously mentioned, THORSwap offers other potentially lucrative DeFi opportunities like liquidity pool provision. When staking multiple assets in an LP, there is risk of impermanent loss. THORChain has implemented an impermanent loss insurance formula for liquidity providers staking more than 100 days.
Synthetic assets aren’t new to crypto. Mirror Protocol is an established player in the digital representation of real-world assets like gold and stocks. THORChain’s Synthetics offer an edge when trading between flagship tokens on slower, more expensive networks. An upcoming feature will also allow single-sided LP with no impermanent loss.
Though THORChain has been audited by Paladin and has a respectable TVL, we cannot stress the importance of due diligence enough. In September of last year, the protocol suffered a hack totalling around $8 million.
Want to learn more about THORSwap Finance’s Synthetic assets? Have a look at the project’s tutorial here.