N.B: The following Coin Report on THORChain is community-selected.
Welcome to the 38th Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of THORChain. This will be comprised of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 10. I hope you enjoy the read!
In all honesty, despite having seen THORChain mentioned on my Twitter feed numerous times over recent months, I paid no attention to it. Partly, this may be due to the ticker, RUNE, which almost immediately put me off, conjuring images of fantasy games rather than anything of substance; my mistake, most certainly. In my experience, however, a ticker can reveal a lot about the underlying project – this is not quite like judging a book by its cover. Nonetheless, it wasn’t until the THORChain community convinced me to include it in my Q4 community poll that I really became aware of it, and, following some preliminary research, realised that it was indeed a serious project. The following report will present my findings since beginning my research.
I hope this report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about THORChain prior to reading this report, here are some primary links:
Algorithm: BEP2 (Proof-of-Stake consensus)
Sector: Decentralised Liquidity Ecosystem
Exchanges: Binance DEX, Bilaxy, BitMax
THORChain was conceptualised in 2018, with its Genesis testnet deployed in September of that year. Development continued throughout Q4 2018 and early 2019, facilitated by a seed round, presale and an Initial Dex Offering (IDO); three rounds of funding that raised a modest $1.6mn in total.
In exchange for funding, investors were offered the core token to the THORChain ecosystem: RUNE. 120,000,000 RUNE were sold of an initial maximum supply of 1,000,000,000; however, this maximum supply has since been reduced to 500,000,000 RUNE after a significant burn event that we shall discuss a little later.
The THORChain Mainnet is scheduled for launch in early 2020, with RUNE currently operating as a BEP-2 asset on Binance Chain.
As RUNE itself has only been listed on exchanges since the summer, there is little price-history available for us to analyse. Nonetheless, the token formed its all-time high only a few days ago at 1031 satoshis, having begun its first bull cycle. It formed its all-time low at 93 satoshis back in September.
Despite its many components and complexities, of which we shall discover more a little later, THORChain has one overarching goal: to provide decentralised liquidity for instant swaps between innumerable blockchain assets.
As stated in its documentation:
“THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.
By leveraging Tendermint, Cosmos-SDK and Threshold Signature Schemes, THORChain is able to remain chain-agnostic, favoring no specific asset or blockchain and able to scale massively without sacrificing security.
THORChain enables users to swap between digital assets on almost any blockchain in a trustless & permissionless setting, with low fees and at market prices. Liquidity is provided by stakers who earn fees on swaps, turning their unproductive assets into productive assets in a non-custodial manner. Market prices are maintained through the ratio of assets in pools which can be arbitraged by traders to restore correct market prices.”
I look forward to evaluating its progress in this regard.
Let’s begin with some Metric Analysis:
Below are listed a number of important metrics, all of which are accurate as of 19th November 2019. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures.
Price: $0.071 (882 satoshis)
Circulating Supply: 107,597,976 RUNE
Total Supply: 500,000,000 RUNE
Exchange Volume: $345,357
Network Value: $7.719mn (949 BTC)
Maximum Supply: 500,000,000 RUNE
% of Max. Supply Minted: 100%
Network Value at Max. Supply: $35.87mn
Exchange Volume-to-Network Value: 4.47%
Average Price (30-Day): $0.026
Average Exchange Volume (30-Day): $430,503
Average Network Value (30-Day): $2.756mn
Average Exchange Volume (30-Day)-to-Network Value: 15.62%
Volatility* (30-Day): -0.3603
Average Daily On-Chain Transactions (30-Day): 24.7
Average Daily Transactional Value** (30-Day): $123,733 (source)
NVT*** (30-Day): 62.39
% Price Change USD (30-Day): +307.6%
% Price Change USD (1-Year): N/A
USD All-Time High: $0.086
% From USD All-Time High: -25.4%
Premine % of Max. Supply: N/A
Premine Location: N/A
Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 1.87 BTC
Liquidity-to-Network Value %: 0.2%
Supply Available on Exchanges: 1,274,023 RUNE
% of Circulating Supply Available on Exchanges: 1.18%
*Volatility is calculated by taking the average price over the given time-period, calculating the difference between it and the highest price and it and the lowest price over that same time-period, and multiplying those figures together. The closer to 0, the less volatility during that period, and vice-versa. Read this for more on volatility.
**Transactional Value in $ is calculated by taking the daily transactional value in RUNE and multiplying it by price.
***NVT is calculated by dividing the Network Value by the Average Daily Transactional Value. See here for more on NVT.
Public IDO Period: 20th July 2019
Total Tokens Available: 20,000,000 RUNE
Total Raised: $700,000
Average IDO Price Per Token: $0.035
Total Tokens Sold: 20,000,000 RUNE
Further Details: Raised a total of $1.6mn across 3 rounds, with the IDO being the final round, distributing 120mn RUNE.
Supply Emission & Inflation:
Block Reward Schedule: See here for full emission schedule
Average Block Time: N/A
Current Block Height: N/A (mainnet not yet live)
Annual Supply Emission: 159,689,972 RUNE (1408.47 BTC at current prices)
Annual Inflation Rate: 148.41%
Circulating Supply in 365 Days: 267,287,948 RUNE (accounting for reward emissions and unlock of vested tokens)
Staking & Masternodes:
Network Staking Weight: 83,056,879 RUNE (77.19% of circulating supply)
Staking ROI (Annual): 52% currently, though this will decrease when the mainnet goes live in early 2020
Masternode Collateral Size: N/A
Masternode Price: N/A
Masternode Count: N/A
Masternode Count Growth (30-Day): N/A
Supply Locked in Masternodes: N/A
Masternode ROI (Annual): N/A
Masternode Reward / Block Reward: N/A
MNV / Network Value: N/A
Address Count: 2,112
Supply Held By Top 10 Addresses: 39.42%
Supply Held By Top 20 Addresses: 43.36%
Supply Held By Top 100 Addresses: 51.53%
Inactive Address Count in Top 20 (30 Days of No Activity): 5
Well, there’s rather a lot to work through here, so I’ll refrain from any preamble and jump right into it. I’ll be looking at the General metrics first, followed by Supply Emission and Inflation, Staking and Masternodes and finally Distribution.
To begin, let’s take a look at the transaction-related metrics, as these give us an indication of non-speculative usage of the token.
Using the past 30 days of data, I found that there were 24.7 Daily On-Chain Transactions on average, equating to $123,733 of Daily Transactional Value. This would give RUNE a 30-day NVT of 62.39; a little lower than Bitcoin at present, indicating potential undervaluation of THORChain.
Moving on, I’d like to take a look at Volatility, which I calculated to be -0.3603 for the past 30 days; this is the second-highest amongst prior reports for 30-day volatility. As such, it is quite clear that we are not in the accumulation phase of the market cycle, though I will discuss this at length in a later section.
Next up, we have the metrics relating to Liquidity:
Firstly, I found that there was ~1.87 BTC of buy-side liquidity within 10% of current prices to be found across all exchanges, equating to 0.2% of its Network Value. This places THORChain around the middle for liquidity of prior reports. This is not particularly impressive and does not give me much confidence in current buy-side demand for the token.
As for sell-side liquidity, I found that ~1.27mn RUNE was available for purchase in the orderbooks, equating to 1.18% of the circulating supply. This is the joint 6th-lowest figure ever recorded in these reports, which suggests that despite no signs of overwhelming demand to buy at current prices, holders are not willing to part with their RUNE, with only a small percentage of circulating supply available on exchanges.
Moving onto volume, THORChain is reported to have traded $345,357 of Exchange Volume over the past 24 hours, equating to 4.47% of its Network Value; this is very impressive and highly suggestive of speculative interest in the token, despite its relatively weak buy-side liquidity. More impressive still is its Average Exchange Volume for the past 30 days of $430,503, equating to 15.62% of its Average Network Value for the same period. This places it 4th-highest amongst prior reports.
Now, let’s take a look at Supply Emission:
Given that RUNE was distributed via token sale, the maximum supply of 500mn RUNE is already in existence, but ~393mn RUNE is currently locked up, either for later distribution after vesting or for emission via network rewards.
Using this comprehensive emission schedule, I was able to calculate that 159.69mn RUNE will come into circulation (accounting for network rewards and vested tokens) over the next year, equating to 1408.47 BTC at current prices. This puts the circulating supply at 267.28mn RUNE this time next year and gives THORChain an annual inflation rate of 148.41%.
What is more important than emission alone, however, is the relationship between it and traded volume:
Using the above figures, we can calculate that Average Daily Supply Emission will be 437,506 RUNE, equating to 3.85 BTC, or $31,387-worth. Though considerably heavy, the emission is more than covered by traded volume, with 24H volume over 10x greater than average daily emissions and Average Exchange Volume over 13x greater. However, THORChain’s liquidity of 1.87 BTC is not sufficient to cover even one day’s-worth of emissions.
This gives us a conflicted image of the degree to which price has headwinds for growth, but I do worry a little about the liquidity issues relative to inflation. This can be disastrous for price, particularly, as we shall come to in the Technical section, when price may well be nearing the peak of its market cycle.
Moving on, there isn’t a great deal to cover for Staking and Masternodes but I would like to mention that there are currently over 83mn RUNE being staked, equating to 77.19% of the circulating supply. This is a huge portion of the supply that is temporarily locked, driving the sell-side illiquidity that may be assisting in THORChain’s recent ascent. Currently, annual returns for staked RUNE are 52%; however, following the launch of the mainnet early next year, this figure will begin to decline.
Finally, let’s take a look at Distribution:
Unfortunately, the BEP-2 explorer is a little less user-friendly and functional than the ERC-20 explorers, but I was able to find that there are currently 2,112 active holders of RUNE.
Among these, the top 10 control 39.42% of the supply; the top 20 control 43.36%; and the top 100 control 51.53%. This is excluding the 1st address listed, which contains 220mn RUNE reserved for network rewards.
Regarding the activity of the top 20 holders, I found that 5 were inactive over the past 30 days. Of the other 15 addresses, 8 were in active accumulation, 5 in distribution and 2 were flat on the month.
And that concludes this section on Metric Analysis. Onto the THORChain Community:
There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.
Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.
THORChain is present on two of these platforms: Twitter and Telegram. To begin, let’s look at the various social metrics that I calculated from the THORChain Twitter and Facebook accounts:
Twitter Followers: 5,306
Average Twitter Engagement: 1.01%
Facebook Likes: N/A
Facebook Posts (30-Day): N/A
Average Facebook Engagement: N/A
As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.
THORChain has a relatively small audience on Twitter of 5,306 followers, which places it in the bottom-third amongst prior reports. More impressively, however, it has relatively strong engagement. The average engagement rate is 1.01%, which is the 16th-highest, relative to projects in prior reports. Relative to global benchmarks, this is 111x greater than the Media industry and 21x greater than the average across all industries. Perhaps it would be wise to incentivise this engaged audience to spread the word in an attempt to grow the community.
There is no Facebook page for THORChain.
There is no active Discord group for THORChain*.
*There is a new group with 67 members, but there isn’t much to comment on here as of yet; all that there is is covered in the next section, regardless.
There are 4,657 members in the THORChain Telegram.
Given the lack of social platforms that the project is present on, it comes as no surprise that this is the hub of discussion on THORChain. Where there is a distinct lack of presence elsewhere on Internet, THORChain’s presence is very much palpable in the Telegram group, with engagement rivaling the largest projects I’ve evaluated. Given that the group size is only the 14th-largest from prior reports, I would estimate its activity levels to be in the top 3, which is all the more impressive.
Over the past week, there have been thousands of messages; far too many for me to attempt to cover extensively here, particularly given the lack of structure of the group relative to a Discord, for example. As such, I will summarise the key takeaways from the group’s discussion below:
- From the operational reserve of RUNE (reserved from inception), unspent RUNE from the allocated budget is burned at the end of each month. This ensures the team do not accumulate unwarranted RUNE. By June 2021, there will be no operational reserve.
- The team’s allocation of RUNE is emitted over time rather than all at once. By June 2021, this will also be depleted, as the project is aiming to be fully decentralised by that point.
- The incentive for the team comes from the significance of RUNE to the ecosystem (we shall cover this more in later sections); if the ecosystem is successful, RUNE will be valuable.
- There is a fully transparent emission sheet (that I linked to in the Metric Analysis section) available for the community to keep track of supply.
- RUNE is the security asset for the liquidity of the THORChain ecosystem; it is not money.
- The team are active in the Telegram, promptly responding to community feedback and questions.
- BEPSwap will be the first platform launched within the THORChain ecosystem, facilitating the instantaneous and liquid swap of BEP-2 assets.
- The team regularly publish detailed blog posts and updates, which are pushed out to the Telegram group.
- The core idea is for THORChain to replace the need for custodial centralised exchanges (and eventually decentralised exchanges). How? By incentivising liquidity (more on this later).
- The community are very much engaged with the project, offering critique and support; the excitement and genuine interest is palpable.
- Eterbase will be a BEPSwap launch partner, with RUNE being listed on Eterbase.
- The goal is for Asgardex (the fully comprehensive swap platform) to be extremely liquid upon launch next year, allowing for seamless swaps between RUNE and BTC, ETH and ERC-20 tokens etc.
Overall, very promising, on both the community front and developmental progress.
There is no active BitcoinTalk thread for THORChain.
And that concludes this section – onto Development:
For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:
There is no information available regarding the team native to the website; however, there are 10 employees listed on LinkedIn and 12 team members listed with 6 additional advisors on ICOBench.
Given that THORChain is seeking to become fully decentralised, the detachment of team information from the website is understandable. Regarding the team itself, it is small but there is some breadth of expertise: marketing, development, operations and compliance are covered.
Overall, certainly not the largest team nor most experienced, but clearly capable, particularly when the project’s progress and future ambitions are considered.
The website is a little underwhelming, though it is somewhat well-branded. I’m not a fan of the lack of a navigation menu, as it makes the user experience a little clunky.
The site prominently displays the tagline The Lightning-Fast Liquidity Protocol, below which we have a brief description of THORChain’s goal: namely, to provide seamless, cross-chain swaps by incentivising liquidity. Below this, we find THORChain’s social links.
Moving down the site, we find a link to RUNEVault, where users can stake and earn RUNE until the launch of BEPSwap. Following this, we find a more comprehensive overview of the THORChain ecosystem, with 6 core components listed: THORChain (the Layer 1 network for digital asset swaps); Yggdrasil Protocol, which is a highly scalable asynchronous liquidity solution; Flash Network, which will facilitate Layer 2 asset exchange; Bifrost Protocol, which bridges networks to THORChain; Asgardex, which will be the liquidity interface for swaps; and Aesir Protocol, which will allow for forkless governance. Links are provided to the Github repositories for each component.
The key takeaway here is the statement that “THORChain will enhance and augment the entire digital asset ecosystem; being completely chain-agnostic and supporting any asset. THORChain does not compete with any existing protocol or chain. Rather it is built to connect them all in one massively liquid, redundant and decentralised network.”
Moving further down the website, we find an announcement on BEPSwap, stated to be a a decentralised finance app on Binance Chain, allowing for the seamless swapping and staking of BEP-2 assets. The testnet is currently live. Beyond this, we find a list of launch partners for BEPSwap, including BOLT, ANKR, Fantom, Atomic Wallet, Tomochain, Lition, Matic, Harmony, Fusion, Elrond and Canya.
Following this, we find a panel of recent news and updates, linking to detailed blog posts, although the last update here was 6th July 2019. We also find links to the whitepapers for each of the six components of the ecosystem.
Coming towards the bottom of the web page, we find the roadmap, which I will cover in the next section, and a brief section on RUNE, the token. Here, we find that RUNE will power the ecosystem by providing network security through Proof-of-Stake via THORChain validators; on-chain liquidity facilitated by RUNE holders staking their assets to earn liquidity fees; and on-chain governance via nodes that bond RUNE to cast votes. The Learn More tab here links to the Telegram group.
Overall, a little lacklustre.
The roadmap is native to the website homepage and is presented chronologically, beginning with the project’s genesis in September 2018. No further reading links are provided for the various goals, nor are there any measures of progress.
Prefacing the roadmap, there is a brief overview of the development phases planned for THORChain, beginning with the launch of BEPSwap, followed by Asgardex, the Flash Network and finally THORPayments.
Regarding the roadmap itself:
- Q1 2019 saw the development of exchange and trading modules, followed by the Ethereum 1-way bridge in Q2 2019.
- As of this quarter (Q4 2019), BEPSwap is expected to launch along with a 2-way Ethereum bridge.
- Moving into Q1 2020, THORChain mainnet is expected to be released with Bitcoin and Binance Chain bridges, followed with Ethereum and Litecoin mainnet bridges in Q2 2020.
- Q3 2020 will see the continued expansion of the ecosystem, with Monero and Loki mainnet bridges.
- Q4 2020 will allow for any altcoin bridge to be built with Developer Tooling.
- Q1 2021 will see the launch of the Flash Network.
- Q2 2021 is the final stage of development, where the THORPayments ecosystem will be launched.
Though the roadmap is impressive in its ambition, it is not particularly user-friendly and certainly not informative; little, if any, explanation is provided for each goal, making the roadmap nebulous for potential new users and community members.
Whilst there is a lengthy whitepaper available for THORChain, it is highly technical and not particularly well-suited to our purposes. There is no similar document available in layman’s terms, which significantly reduces accessibility for potential users.
*UPDATE: I was introduced to work-in-progress documentation that explains the technology in layman’s terms: https://docs.thorchain.org/
Here, we find an overview of the THORChain ecosystem, as well as BEPSwap.
Beginning with the introduction, we are introduced to the primary reason for THORChain’s existence: to build a liquidity marketplace that facilitates cross-chain swaps of digital assets. This is intended to be achieved by incentivising network validators to provide continuous liquidity (dubbed Continuous Liquidity Pools). The ecosystem will be chain-agnostic and scalable, whilst remaining secure, all by leveraging the technologies developed by Tendermint, Cosmos-SDK and Threshold Signature Schemes.
The goal of the ecosystem will be to provide all of the above “in a trustless and permissionless setting, with low fees and at market prices”.
But how precisely will this work? Well, according to the document, the protocol will comprise of stakers, swappers and traders, with the former providing the liquidity in exchanges for fees on swaps, “turning their unproductive assets into productive assets in a non-custodial manner.” Traders, in turn, will be incentivised by arbitrage, maintaining market prices via the ratios of assets within liquidity pools.
Moving onto the Overview page, we find more thorough explanations of all of these moving parts. Most significantly, in the opening paragraph, we are told that, by design, the protocol will incentivise each of the three participants (stakers, swappers and traders) to play their part in the marketplace of liquidity. This is critical to the success of the entire ecosystem; if any one participant is not sufficiently incentivised, the marketplace of liquidity is defunct. THORChain will ensure this cannot happen by guaranteeing incentive, of which we will learn more a little later.
Given all of the above, it then makes perfect sense that THORChain is seeking to replace the requirement for custodial, centralised exchanges; orderbooks would become obsolete if a market participant could exchange any amount of one digital asset for another instantaneously, on-chain and without slippage.
Moving on, we come to the crux of the matter: the value proposition for each of the three market participants.
- Swappers are those that are looking to exchange their digital assets; they want low fees, a deeply liquid market and permissionless, instant exchange.
- Stakers stake their assets within liquidity pools, earning fees on swaps. This provides part-ownership of the pool, with assets able to be withdrawn immediately.
- Traders use arbitrage to profit when pools become imbalanced or to correct market prices.
Further down, we find detail on the design of the protocol itself, beginning with consensus. THORChain’s consensus is Proof-of-Stake, built on Tendermint, with network validators required to bond (lock up) RUNE. Validators are penalised for bad behaviour by having their stake slashed, disincentivising such actions.
The protocol itself will use cross-chain bridges to connect assets to THORChain, allowing the pooling of assets and the subsequent exchange between them. By the launch of the mainnet in 2020, THORChain will have “100 validators securing cross-chain bridges to Bitcoin, Monero, Ethereum & Binance Chain… Users will be able to swap between BTC, ETH, XMR, BNB & any BEP2 asset using ASGARDEX, THORChain’s exchange interface.”
Regarding the RUNE token itself, we are told that it will be integral to the THORChain ecosystem, providing the necessary economic incentives that underpin the protocol. For example, it will be used as the network fee for transactions (all of which will be burned). It will also provide validator rewards, with RUNE being bonded by stakers. Validators are then paid via block rewards. RUNE will also be used for governance, allowing holders to vote on-chain. Most importantly, “the total liquidity requirement for RUNE is directly proportional to the combined liquidity of other assets. A rule of thumb is for every $1m in main-chain assets staked in liquidity pools, $1m of RUNE is required to be staked alongside.”
Based on the above, it is quite clear to see that the success of RUNE is highly correlated, if not inextricable, from the demand for the THORChain ecosystem.
Overall, the documentation is highly informative and largely jargon-free.
RUNE can be stored in any BEP-2 compatible wallet. This includes a number of hardware wallets, local wallets and mobile wallets.
As can be seen from the RUNE/BTC chart printed above, RUNE spent most of its early existence range-bound between the all-time lows it printed around 90 satoshis and range resistance at 200 satoshis. This range lasted 12 weeks, between July and October, and it wasn’t until late October that the token showed any signs of life.
Price was able to breakout above range resistance, lingering above it for a few days before retesting it as new support; since then, there has only been upside, in the most textbook bull cycle fashion. Disbelief was certainly the stage of the market cycle following this breakout in early November, and price made its all-time high at 1,031 satoshis a few days ago. Since then, it has come off a little, which, given the steepness of the rise, was expected. What I am uncertain of now, however, is whether we are going to see Complacency form after this past week’s Euphoria, culminating in THORChain’s first bear cycle, or whether this cycle continues higher.
I do not, under any circumstances, buy a token whilst it is in the middle or latter stages of a bull cycle, particularly not during its first cycle where there is no historical context available for price. As such, I would await the first bear cycle before entering a position, which I expect would give us prices closer to 250 satoshis; almost 75% off their current levels.
This report is now over 4,000 words and it is time to draw it to a close.
My final grading for THORChain is 7 out of 10.*
*If the grading was solely based on development, THORChain would score an 8, with a possible 9 upon launch of the mainnet in 2020 (given sufficient demand for the services). However, the liquidity issues for RUNE at present are worrisome, as is the concentrated presence on only one social platform and, of course, the unattractive price.
Here, you can find my grading framework, for reference.
Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.
I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.