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Learn how Thorchain works in one article?



What is Thorchain and how does it enable the exchange of original assets on different blockchains? This article will answer these questions. The trading volume of DEX has reached billions of dollars, and it is gaining more and more attention. It is very common for Uniswap to have a daily trading volume of more than 1 billion US dollars. While asset trading like within the Ethereum ecosystem (protocols such as Uniswap, Sushiswap, or Curve) has done very well, they do not support swapping between different blockchains. To solve this problem, a common approach is to introduce external assets in the form of wrapped or synthetic tokens on Ethereum. The most popular blockchain asset outside of Ethereum is of course Bitcoin. There are a variety of ways to represent Bitcoin on Ethereum, allowing it to be traded on DEX, such as renBTC, sBTC, etc. While these methods work well, they often come with certain trade-offs when it comes to the custody or security of assets. Is there a way to achieve direct exchange of native assets? For example, transactions are made directly between BTC on the Bitcoin blockchain and ETH on the Ethereum blockchain. This is where Thorchain comes into play. Thorchain is a decentralized liquidity protocol that allows native assets to be exchanged between different blockchains such as Bitcoin, Ethereum or BSC. In terms of liquidity management, Thorchain uses the liquidity pool model of protocols such as Uniswap or Bancor. In this mode, liquidity providers lock two assets in the liquidity pool and provide liquidity for traders of these two assets. Traders pay a small fee to liquidity providers. Thorchain is often interpreted as a cross-chain Uniswap. This analogy makes it easy for us to understand what Thorchain does, but in fact there is a big difference between the two, which will be explained below. Before diving into the mechanics of Thorchain, let's take a look at how the project was born. Thorchain was a small project at the 2018 Binance Hackathon. The transaction volume on the Aptos chain exceeded 9 million, and the market value exceeded 1.25 billion US dollars to a new high: On October 23, according to the latest data from Aptos Labs, the transaction volume on the Aptos chain has exceeded 9 million, reaching 9,071,709 transactions so far, and the active-zce pledge volume It is 822,271,445.25 APTs. According to data from Coingecko, the current market value of Aptos (APT) has reached $1,266,714,801, a record high. [2022/10/23 16:36:01] After the hackathon, the team behind Thorchain continued their research, but decided to suspend some of their work as they waited for the technology needed to create a cross-chain DEX, which Technology was missing at that time, mainly Tendermint & Cosmos SDK and TSS - Threshold Signature Scheme. When seeing the viability of the product, the team decided to raise a small amount of seed funding and built a proof-of-concept of a DEX based on the Thorchain protocol, called Instaswap, which was later demonstrated at the Cosmos Hackathon in Berlin. After that, they announced their first product to the market - BEPSwap in July 2019. The main goal of BEPSwap is to realize BEP2 asset swap, only on Binance Chain. Also in July 2019, the team decided to raise more funds through an IDO (Initial Decentralized Exchange Offering) on Binance Dex. The IDO resulted in the raising of $1.5 million, enough to take the project further. The team continued their work on the protocol, releasing a restricted mainnet in April 2021, called the multi-chain chaos network (MCCN for short). Interestingly, the Thorchain team was mostly anonymous, and remains so to this day. Now, let's see how Thorchain works under the hood. At the heart of the Thorchain protocol is a network of nodes built with Tendermint and the Cosmos SDK. The number of addresses holding more than 1,000 ETH reached a 16-month high: Jinse Finance reported that Glassnode data showed that the number of addresses holding more than 1,000 ETH reached a 16-month high of 6,453. [2022/9/11 13:23:02] This approach allows Thorchain to create an independent blockchain, with its own consensus and network layer, without having to build all the elements from scratch. Thorchain uses the Tendermint BFT model to allow the network to reach consensus even if up to 1/3 of the nodes fail. The consensus mechanism is important because Thorchain's nodes must work together, such as recording transactions from other blockchains. Let's see how this works in practice with a quick example: Suppose a user wants to exchange their BTC on the Bitcoin network for ETH on the Ethereum network. The user sent a standard bitcoin transaction to the bitcoin vault - a bitcoin address controlled by the Thorchain network. Thorchain nodes constantly monitor vault addresses to confirm new transactions. In order to do this, each Thorchain node (also known as THORNode) consists of several main parts, the most important of which are: the services that run the Thorchain blockchain itself; Coin or Ethereum nodes; and Bifrost. The Bifrost protocol acts as a connectivity layer between the Thorchain network and other networks such as Bitcoin or Ethereum. One of its main responsibilities is to observe vault addresses in order to find inbound transactions, which are subsequently converted into THORChain witness transactions. Witness transactions are initially recorded as "pending" - a state in Thorchain's state machine. After a majority of nodes agree on the state of an inbound transaction, the transaction is moved to the "finalized" state. At this point, the user's Bitcoin deposit is recorded on the Thorchain blockchain. Opinion: Bitcoin rebounded after 12 consecutive days of decline, but the market atmosphere is still "very negative": News on June 20, Bitcoin ended 12 consecutive days of decline and rebounded with other cryptocurrencies. But analysts warn that the respite may be short-lived. The largest cryptocurrency rose as much as 12 percent earlier Sunday, recouping most of Saturday's losses. Bitcoin once fell to $17,599 per coin yesterday. The cryptocurrency market is known for wild swings, especially on weekends, as volatility can be amplified. The overall tone remains negative, with macro headwinds from monetary tightening and a crisis within cryptocurrencies raising fears of mounting distress. (Golden Ten) [2022/6/20 4:39:28] Time to do the other part of the exchange, sending ether back to the user. Once a new inbound transaction is confirmed, the Thorchain protocol initiates swap. The swap transaction is recorded on the Thorchain blockchain and the Bifrost protocol is used again, this time to withdraw ETH from the Ethereum outbound vault. Using the corresponding chain client (in this case, the Ethereum client), convert this outbound transaction from within Thorchain into a valid transaction for the target chain and broadcast it to the corresponding network. At this point, the swap is complete and the user ends up with ether in their Ethereum wallet. While this sounds simple, there are quite a few details involved in making this possible. In order to sign transactions, the network must be able to control the vault address on each integrated blockchain. Of course, storing private keys on each node is a huge security risk, which is why Thorchain uses the aforementioned Threshold Signature Scheme or TSS. TSS is a cryptographic primitive for distributed key generation and signing. You can think of it as a better version of multisig. Both are focused on achieving the same goal - allowing multiple parties to come together and sign transactions only if a certain previously set threshold is reached. The main difference is that multisig is usually implemented at the application layer of the blockchain, for example, as a smart contract on Ethereum, whereas what TSS supports is blockchain-agnostic as it relies on basic cryptography elements. The mStable Save contract has been upgraded to support the ERC-4626 standard to promote composability: On May 31, the stablecoin aggregation protocol mStable announced that its mStable Save product contract has been upgraded to support the ERC-4626 standard on the Polygon and Ethereum mainnets. In January of this year, Fei Protocol founder Joey Santoro and Rari Capital developer Jet Jadeja proposed a new proposed token standard ERC-4626, ERC-4626 is a tokenized Vaults standard with a single underlying ERC-20 token, including Standard functions such as minting, depositing, withdrawing and balancing ensure composability between Vault tokens of different protocols. [2022/5/31 3:53:20] This makes the whole process of signing transactions cheaper and more secure. While TSS has many benefits, it has not been as battle-tested as other popular cryptographic elements such as ECDSA or certain hash functions. Another interesting detail of Thorchain's architecture is how Vault works. There are two types of vaults - "inbound" and "outbound". Inbound vaults store most funds in the system. They are slower and can take up to 20 seconds, but are more secure because they require 2/3 of all TSS signers to sign a transaction. This is very restrictive for the overall system, so Thorchain introduces smaller, less secure outbound vaults run by each THORNode. These vaults are faster because they only need to be signed once on the node they are running on. Funds in these vaults are limited to 25% of the value of their asset bonds. More on the staking process later, which creates incentives to prevent node operators from stealing funds from the depository. These vaults are also constantly being recharged by the system as funds are used for outbound transactions. As mentioned earlier, Thorchain uses Tendermint and the Cosmos SDK. In this mode, the Thorchain network operates as a Proof-Of-Stake (PoS) system, and nodes that sign and verify transactions must pledge a certain amount of RUNE tokens. announced that it will become a platinum sponsor of MIT Fintech in 2022: Jinse Finance reported that according to official Twitter news, announced that it will become a platinum sponsor of MIT Fintech (MIT Fintech Conference) in 2022, Crypto .com CEO Kris Marszalek will be speaking at the conference on the exponential growth and adoption of cryptocurrencies. Other notable speakers at the conference include Algorand founder Silvio Micali, Ripple CTO David Schwartz, SEC Commissioner Hester Peirce, and others. MIT Fintech is the world's largest financial technology conference organized by students. This conference is the 11th annual conference and will be held within 1 day. [2022/2/24 10:13:31] In the Thorchain ecosystem, the process of staking RUNE tokens is also called bonding. On May 17, 2021, 1,000,000 (worth approximately $18 million) RUNE tokens will be required to run a fully functioning Thorchain node. In contrast to most PoS system variations, delegation of tokens is not allowed here. Because it is necessary to ensure that all nodes in the network are treated equally and prevent a certain node operator from capturing most of the tokens for a long time. In fact, all nodes in the Thorchain network are anonymous and can only be identified by their IP address and public key. They cannot brand or market nodes like other systems that allow delegation. To avoid always signing transactions by the same node with the highest amount of RUNE tokens, Thorchain introduces the concept of Churning. The network maintains an active-zce set of nodes capable of signing transactions and another set of standby nodes. Every 50,000 blocks, or every 3 days or so, the churn process kicks in and the oldest or least reliable nodes in the active-zce zone are replaced by nodes in the standby zone. The churn process ensures that new nodes that meet the pledge criteria can sign transactions in turn. Additionally, the Thorchain network will transfer funds to new vaults every time the validator set changes, ensuring active-zce nodes still have access to funds. Currently, there are 28 active-zce nodes and 45 standby nodes on the single-chain chaotic network supporting BEPSwap, and 11 active-zce nodes and 9 standby nodes on the recently released multi-chain chaotic network. Currently, the multi-chain chaotic network is in expansion mode, which means that for every node squeezed out of the network, 2 nodes will enter. Multi-chain networks can grow up to 99 nodes before hitting Tendermint and TSS limits. Even if the network grows to 99 active-zce nodes, it can still scale further through the ability to have sharded treasuries. It's also important to note that even though running a fully functional node requires a lot of RUNE, one can still run a node without RUNE bound. These nodes are able to verify transactions, but do not have the ability to sign transactions. The final key element of Thorchain's architecture - the RUNE token. RUNE powers the Thorchain ecosystem and provides the economic incentives needed to secure the network. All liquidity pools in the system are composed of native tokens and RUNE. For example, to swap from bitcoin to ether, the transaction must go through the BTC-RUNE and ETH-RUNE pools.


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