Is THORChain (RUNE) Undervalued? with Erik Voorhees and Chad Barraford

What is THORChain? Join David as we explore the liquidity protocol that allows swapping between BTC, ETH, and more without intermediaries. Chad Barraford is a core developer at THORChain, and Erik Voorhees is a Bankless staple who has found a deep resonance with THORChain's mission. Is THORChain helping build the Bankless future? Come find out. ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 👾GMX | V2 IS NOW LIVE https://bankless.cc/GMX 💲 USDV | NATIVE OMNICHAIN STABLECOIN https://bankless.cc/usdv ------ TIMESTAMPS 0:00 Intro 3:30 What is Thorchain 7:10 Erik and Shapeshift 10:20 How it Works 13:40 Is this a Bridge? 17:00 Staking and Security 20:00 Rune 28:45 Bitcoin and Ethereum 32:20 Latency 36:00 The Bull Case for Thorchain 38:40 Specialization 40:40 The Roadmap and Community 44:00 Get Involved ------ RESOURCES Erik Voorhees: https://x.com/ErikVoorhees?s=20 Chad Barraford https://x.com/CBarraford?s=20 THORChain Website https://thorchain.org/ THORChain Twitter https://twitter.com/thorchain ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:03David Hoffman?

  What is ThorChain? I don't know, but I'm here to find out and to help me learn about what ThorChain is. I've brought on two people with me on the show today. First, Chad Barraford, one of the core developers of the ThorChain project, as well as Erik Voorhees, Bitcoin OG, who discovered ThorChain to be the spiritual, protocolized descendant of his old centralized shapeshift exchange. If you are looking to understand what ThorChain is, how it works, why the rune token captures value, and how ThorChain can change the crypto landscape, then this episode is for you. Bankless Nation, I do not own any rune myself, and Bankless as a company holds no position in this particular project. We are simply here to just learn and explore and to give projects like ThorChain that

• 0:47David Hoffman?

  are in pursuit of helping build a Bankless future a voice to the rest of crypto, to showcase what they are building and why they are building it. So, time to put your learning hat on. Let's get into the conversation with Chad and Eric. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Kraken, our preferred centralized exchange for crypto in 2023 and 2024. If you have any fiat boomer bucks left, Kraken is the exchange for you to turn your fiat bucks into crypto assets. That's the place where I do it, that's the place where you should do it too. If you do not have an account with Kraken, consider clicking the link in the show notes to getting started with Kraken today. Kraken knows crypto. Kraken's been in the crypto game for over a decade, and as one of the largest and most trusted exchanges in the industry, Kraken is on the journey with all of us to see what crypto can be.

• 1:31David Hoffman?

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• 2:16David Hoffman?

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• 3:01David Hoffman?

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• 3:45David Hoffman?

  Visit arbitrum.io and get your journey started in one of the largest Ethereum communities. Bankless Nation, I would love to introduce you to Chad Baraford, a serial entrepreneur and Web2 builder, starting in 2010, until he got bitten by the blockchain bug in 2017. While participating in a Cosmos Hackathon in 2019, Chris wrote some of the first lines of code that were committed to the Thor Chain project and has been the largest code contributor ever since. Chad, welcome to Bankless.

• 4:12Speaker 01

  Thank you for having me. I've been dying to come on for quite a long time. I even showered today. That's how I'm exciting, I took a shower.

• 4:20David Hoffman?

  Yeah, the Thor Chain community are right alongside you with you. I'm sure they're very, very excited to have this episode. In addition to Chad, we also have Eric Voorhees, the crypto OG. You know him. He needs no introduction other than the fact that I suspect Eric's interest in Thor Chain runs parallel to his creation of Shapeshift, a decentralized exchange that has changed many shapes over the years, both as innovations in crypto, has offered new solutions, and also regulatory pressures, has changed what's allowable in the cryptosphere. Eric, welcome back to Bankless.

• 4:48Speaker 01

  What's up, David? Good to see you, man.

• 4:50David Hoffman?

  Likewise, likewise. All right, Chad, I'll throw this one back to you. What is Thor Chain?

• 4:55Speaker 01

  Yeah, so Thor Chain is a DEX. It's an AMM similar to Uniswap, which I'm sure a lot of your watchers, listeners are aware of that. And what makes Thor Chain so unique and so different is that it's able to do a cross-chain swapping with Layer 1 assets. It doesn't do wrapped assets. It doesn't do anything like fake Bitcoin or whatever, but it can transact between Bitcoin to Ethereum to AVAX to BNB to Doge to Litecoin to a bunch of different chains all at once. And that is a transformative and much-needed technology in our space.

• 5:26David Hoffman?

  When you say DEX, Chad, typically my brain and many others are just kind of going to go to a smart contract on Ethereum, something like Uniswap, something like Sushi Swap. But that's not exactly what Thor Chain is. Can you talk about the differences that Thor Chain is bringing to the table in the pursuit of the goal, which is to be a decentralized exchange?

• 5:45Speaker 01

  Right. So you can't actually build a cross-chain DEX in the same context with a smart contract. You need to have your own validator set so that they can use what's called threshold signatures to control a wallet once over 100, 105, I think the number is of validators. So we had to build it outside of Ethereum in order for this to actually function and work. And so everything is done by a Cosmos chain. It's a Cosmos chain itself with 105 validators right now. And so those all operate together to custody those funds while you're trading or swapping or LPing or any of these kind of things.

• 6:19David Hoffman?

  Okay, so ThorChain is a, the goal of ThorChain is to be a DEX, but specifically a cross-chain DEX. So there's many different blockchains out there. And ThorChain wants to make them a little bit more interoperable, a little bit more integratable with each other, like a middleware layer between many, many blockchains to help them be able to swap assets with each other, correct?

• 6:39Speaker 01

  Right. And one of the key components, the key focus is we want to make sure this thing could operate with anything. It could be UTXOs, it could be EVMs, it could be a crypto note like Monero, it could be a Polkadot, it could be Cosmos, it could be arbitrarily any chain that you can probably think of. ThorChain could provide support.

• 6:56David Hoffman?

  Okay, we'll get into the technical details about how that works, because I would imagine that is a pretty large engineering lift, getting blockchains to talk to each other.

• 7:05Speaker 01

  Yes, the answer is yes to that question.

• 7:07David Hoffman?

  I'm sure, I'm sure. Before we get into the technicals though, Eric, maybe talk a little bit about your perspective and your journey discovering ThorChain and why it resonates with you so much.

• 7:17Speaker 02

  Yeah, okay. So, so when we started Shapeshift back in 2014, it was notable because it was non-custodial and it was a way to trade one asset for another. So this was like in the wake of the Mt. Gox collapse and basically I wanted to create an exchange that couldn't steal people's money because it didn't hold people's money. So an asset would come in and we'd send an asset back out. And so while it was non-custodial, we were still the intermediary. So a user's asset would come to us as a centralized company and we would send an asset back to that user right away. And that worked for a while.

• 7:59Speaker 02

  However, by the time, you know, the big bubble in 2017, 2018 happened, the regulatory pressure on Shapeshift became, let's just say, high. And we made the horrible, difficult decision to implement KYC on Shapeshift and basically operate like a financial institution. And what pulled us into that requirement was being an intermediary. So this was, this was very tragic for us and I didn't really know what to do and I kind of floundered around for a couple of years under that model. And then I saw Uniswap emerge and Uniswap didn't have KYC. It had that similar easy magic of trading one asset for another that Shapeshift had years before.

• 8:44Speaker 02

  And Uniswap was a company based in Brooklyn and I was like, how the hell are they doing this without getting into all the legal mess that we have? And I end up, sorry, I was phone. I end up learning that

• 8:58Speaker 02

  that it's because as a smart contract, they are not an intermediary. So they're not, they're not receiving funds of anyone. And I started learning about smart contracts more in depth. And I was like, man, this is, this is great. I wish Shapeshift could do this. But there's a big problem, which is that Uniswap doesn't work on any chain other than ETH. So while you have all the tokens there, that's cool, but we can't, you can't use something that's like, doesn't include Bitcoin. So fast forward like a couple of years and I learned about Thorchain and I learned that it's a DEX like Uniswap, but it actually supports not only Bitcoin but other major chains.

• 9:38Speaker 02

  And I realized we could actually just swap out the entire backend of Shapeshift for the infrastructure that Thorchain had built. And if we did that, we wouldn't be an intermediary anymore and we could remove KYC once again. And that was a wonderful day. So we ended up doing that. And Thorchain remains the only DEX in the world that can trade between Bitcoin and ETH native layer one at scale. So very, very glad you guys are talking about it.

• 10:04David Hoffman?

  Interestingly enough, Thorchain and Uniswap both started in 2019. Uniswap mainnet V1 hit Ethereum, I think in November of 2019, which is the year that Chad here apparently started coding up Thorchain at that Cosmos hackathon. Chad, was that the actual inception of Thorchain was at that hackathon? Talk to us a little bit about the genesis of the project.

• 10:25Speaker 01

  Yeah, so it actually started in 2018. And one of the other co-founders, along with other individuals, tried to build Thorchain in that time period. And unfortunately, it wasn't really all that practical. Cosmos hadn't really come out yet. We need to build our own blockchain. You couldn't just like throw it on Ethereum. So we needed something to build our own chain and Cosmos wasn't quite a thing at that time. And then also we were missing like threshold signatures, which is a kind of like a fancier multi, for lack of a better term. And that didn't really quite exist at the time either. It wasn't really in 2019 when Cosmos kind of relaunched. What's called GG 18 came out in 2019 as well. And that just opened the door for like now the technology there, the cryptography we need, the technology we need is now like all the ducks are in a row. Let's go. Let's do this thing.

• 11:12David Hoffman?

  Talk to me about the tech stack that is Thorchain. So built on Cosmos and Cosmos is meant to be an interoperability standard to help facilitate some of this kind of stuff. How does Thorchain work as a technical system?

• 11:27Speaker 01

  Yeah, so we have our own validator set and each validator runs a full node of every blockchain. So a full node of Bitcoin, a full node of Doge, a full node of Ethereum, so forth and so on. And so each blockchain, each validator will watch these blockchains and look at the addresses that the network kind of owns, right, or maintains. And it just makes observations of

• 11:45David Hoffman?

  That the Thorchain network owns on respective blockchains, correct?

• 11:49Speaker 01

  Right. So the network holds, or right now I think it's six different Bitcoin addresses, like BC1 addresses and, you know, six different OX addresses on Ethereum and AVAX and, you know, so forth and so on. And so these nodes just kind of observe these addresses and watch for inbound activity or outbound activity. And that's reported on chain. So hey, I saw, you know, David sent one Bitcoin to us and in the memo, or called an opportune in Bitcoin speak, says, oh, I want to swap to Ether and here's my OX address and here's what I want to execute. And then all the nodes just, you know, observe this transaction on the Bitcoin network, push that observation into the Thorchain network. And then once a two thirds majority all agree that this Bitcoin came into the network, it executes some business logic to

• 12:33Speaker 01

  do the actual swap and trade of the AMM itself. And then we assigned a transaction on the outbound to send you your ETH on the other side. And when you do this, like, the only requirement to do this is just to be able to sign a Bitcoin transaction or sign an Ethereum transaction. You don't need to have a Thorchain wallet. You don't need to own Rune. You don't need to do all these things. You can just, if you can sign a Bitcoin transaction, you can access whatever asset you want that the network can support.

• 12:58David Hoffman?

  Now, historically, Chad, me and Ryan at Bankless here have been resistant-ish to cross-chain bridges. And this kind of feels like a cross-chain bridge, because when you span multiple blockchains, you are giving up sovereignty of a single set of trust assumptions, and now you are having dual trust assumptions. So like, having a bridge that spans Ethereum and Thorchain into Thorchain, and then into another ecosystem. Usually, historically, with other bridges, that means that you are beholden to a new set of trust assumptions that are new threat models to your asset ownership.

• 13:41David Hoffman?

  Is this concern present here in the Thorchain model? Or how does Thorchain alleviate some of these concerns?

• 13:46Speaker 02

  Can I take this one, Chad?

• 13:47David Hoffman?

  Go right ahead.

• 13:48Speaker 02

  Yeah, I think this is one of the misnomers that confuses people a little bit. Like, Thorchain's not a bridge, it's an exchange. It's an AMM exchange. You don't use Thorchain to move an asset from ETH to Avalanche, for example. You trade a native asset that you had on the Ethereum network for a native asset that you want on Avalanche. So the chains are not communicating with each other at all. You're not taking like a bridged Avalanche version of ETH over onto Avalanche. These worlds stay in their own isolated islands, and Thorchain just lets you trade one for the other without an intermediary in between.

• 14:32David Hoffman?

  Yep. Understood. Okay, so the previous threat model, the famous wormhole hack, for example, left a lot of ETH stranded on Solana. There was wrapped ETH on Solana. And Eric, you're saying, "Well, that's just not what Thorchain is up to." Right. Thorchain will let you sell your Ether on Ethereum and purchase Solana on Solana, and the assets stay in their respective ecosystems. Yep. This kind of seems like the spiritual descendant of Shapeshift, where there actually is a protocol version of what you did in... Looks like you were just kind of manually pushing things around. Thorchain is doing it as a protocol. Right.

• 15:13Speaker 02

  Yep. And because because the protocol is doing that instead of a business.

• 15:20Speaker 01

  Hmm.

• 15:21Speaker 02

  Um, the protocol does not comply with regulations. It is an amorphous machine that just operates. Um, and uh, it has no specific jurisdiction. So that's where the magic comes from.

• 15:35Speaker 01

  I agree with Eric that I wouldn't consider Thornton to be a bridge, just like you wouldn't call it call Coinbase a bridge. You would call it an exchange, right? And bridges are all highly problematic, in my opinion, because they're they're they're wrapped assets that you're generally doing. And as long as you hold that wrapped asset, you are prolonged exposure to that that that bridge risk. Whereas in Thor Chain, you swap your Bitcoin to Ether, whatever you're doing, as soon as it swaps over, the risk is gone, right? For for you as a as a as a trader or a swapper. And a lot of the times those bridges are designed in a way where you they actually take on the risk of a deep of the protocol risk of a of a smart contract. And they also take on the centralized risk of the people who operate that system. Because oftentimes it's just like a trusted entities that you that they like, a handful of individuals have access to the keys.

• 16:19Speaker 01

  And because of that, we've seen 200, 300 million dollar hacks where they uh, exploited some smart contract risk of some sort of bug in the code in one case. Or another case where they emailed one of the devs, a malicious PDF that he opened and then exposed all these private keys. And then all the all the funds were lost. And so you're concatenating or adding the risk of C5 and DeFi into a single system, which to me is highly risky, which is why we saw so many bridges get absolutely wrecked in the last year. Whereas Thor Chain just has that kind of protocol risk, like the same as what Uniswap has.

• 16:53David Hoffman?

  Certainly, certainly. Okay, so yeah, the the bridge risk doesn't exist because it's not a bridge. Um, but yet there is a security model for Thor Chain. Maybe you can kind of get into like, how does the Thor Chain system? How is that enforce honesty? How does that enforce the protocol to work as intended?

• 17:11Speaker 01

  Yes. So one of the core concepts of Thor Chain is this concept of economic security, right? So if I wanted to give you, uh, say I want you to be secure some assets, right? And I and and so in order to give that privilege, you, you know, lock up a hundred dollars, right? And and some account or some way of doing so. And then I give you, all right, cool, I'm going to give you a thousand dollars of my money right now, right? Now, is that very secure? Well, no, you gave up 100 bucks. Now you've got 1,000 in your pocket. You're going to go ahead and run off and have a great day. Right? You just made a bunch of money. And so that's what we call a lack of economic security. And almost every cross-chain system, with the exception of ThorChain, has that risk where you're assuming that the value that is securing the assets

• 17:55Speaker 01

  is going to be worth more than the assets that you're securing. And ThorChain's specific design, in all cases and scenarios, it doesn't matter if Rune's price is pumping, or Rune's price is diving, or Bitcoin's price is pumping, or Bitcoin's price is dumping. In all cases and scenario, it's economic. It always ensures that the value of the assets that the network is securing is always worth more than the validators put up at risk of their own money. So even if you were to acquire and you had to have to civil attack the network and have two-thirds consensus of all the nodes, the amount of money you'd have to spend to get there would be so much more money than the Bitcoin and the ETH and the Doge and the Litecoin and the BNB, all those assets combined, is you would always lose money in that scenario.

• 18:37David Hoffman?

  And so what is the incentive to stake? I'm going to go ahead and guess that the ThorChain asset, the native asset of ThorChain is the thing that you stake. What is the incentive to stake? Like, why are stakers staking in the first place? Like, what do they get?

• 18:52Speaker 01

  Yeah, so the network has what I would consider real yield, right? So people are trading, swapping, they're adding Bitcoin, they're taking out ETH, and they're paying fees into these pools along the way. And so the network will split this income, right? There's two sources of income. One is the block rewards of the system, and two is like the trading volume. And it's about, less than I looked, it's about 50/50. Half the rewards are from block rewards, half the rewards are from fees collecting from traders and swappers. And the network will take this income and decide, I'm going to give some percentage to the LPs who are providing liquidity and some percentage to the validators, the nodes who are committing blocks, these kind of things. And it has a mathematical equation that he uses to balance between these two entities. If we have too much security and not enough LPs, the validators make less money, the LPs make more money

• 19:35Speaker 01

  to incentivize, hey, you can kind of leave here and join over here, right? If there's too much liquidity in the pools and not enough security, the pendulum swings to the other side, giving validators more income and LPs less income to incentivize them to either, you know, leave and for more validators to show up and become, you know, stake more Rune to earn more rewards.

• 19:56David Hoffman?

  Okay, and then the issuance of the Thor asset is to secure the blockchain like all blockchains.

• 20:03Speaker 01

  Yeah, the Rune asset.

• 20:04David Hoffman?

  The Rune asset, excuse me, the Rune asset, the token is called Rune, Thorchain Rune, okay.

• 20:08Speaker 01

  Yep.

• 20:09David Hoffman?

  And then, what are the economics of that? Is it purely an inflationary asset and more people just buy it so that they can stake it to earn more fees? Or what's the economic system of Rune?

• 20:19Speaker 01

  Yeah, so it is a hard cap set of 500 million tokens. It's not like an infinite mint Cosmos token, which is commonly true. And so you can stake it and run a validator. Every pool is comprised of two assets, which is Bitcoin and Rune, ETH and Rune, USDC and Rune. And so if you want to be an LP, you can provide the liquidity that way and kind of earn rewards in that context as well. But everything that you do with the network, whether you're swapping, whether you're an LP, whether you're a saver, whether you're opening a loan, whether you're running a validator, all of these things inherently and directly derive value into the token. And that's partly why we've seen this big, huge movement in, not just in Rune's adoption over the last couple of months,

• 21:01Speaker 01

  Thorchain's adoption in the couple of months, but the price has moved with it because all that additional trade volume pushes value into that Rune asset. Whereas like in Uniswap's case, the uni-token has no relationship to the AMM at all. It's just a governance token, right? So you could have a trillion dollars of trade volume on Uniswap and the token is decoupled or detached from that. Well, that's not the case with Rune. The more adoption we get, the more kind of value is driven into the Rune asset.

• 21:28Speaker 02

  Yeah, I'll explain that slightly differently. So like, assume a certain level of liquidity in the pools, like 100 million dollars of capital in the pools for Thorchain. And then people are finding the DEX useful, right? Like, people are trading an increasing amount of ETH to Bitcoin. As that volume increases on that hundred million dollars of pooled capital, the fees going to those providers are getting higher and higher and higher, right? So the yield from being an LP is getting higher and higher and higher. Eventually, that that will incentivize people to put more funds into the pools. But every pool in Thor Chain is asset plus rune. So if you're going to come in and put a million dollars into the these pools because the yield is so high,

• 22:13Speaker 02

  that's going to be $500,000 of ETH and $500,000 of rune. So as trading volumes increase, that there's an organic or there's a an organic demand created there for rune because it's always 50 50 paired with the liquidity in the pools. That's a simple way to think of it.

• 22:28David Hoffman?

  So if I'm swapping my Ether for Bitcoin, start with Ether on Ethereum, send it over to Rune, Ether gets sold for Rune, and then that Rune gets sold for Bitcoin inside of the Thor Chain blockchain. And then I find my Bitcoin out on my Bitcoin address on the other side, correct?

• 22:45Speaker 01

  Correct.

• 22:46David Hoffman?

  And then a fee is a fee is taken on both swaps and or it kind of doesn't really matter. There's just like an aggregate fee, a cost that's made to make this trade happen. And then that stays inside of the Rune system to the liquidity providers.

• 22:59Speaker 01

  Correct. We call that a double swap. It happens totally in the backend. You're not even aware. You're not really in that room with it. But we call that double swap. But because of our newer feature we have called streaming swap, it just grows really highly capital efficiency on these trades and swaps. You can do that trade and pay a five basis points on that trade. Even if you're doing a million dollar trade, even doing a $5 million trade from Bitcoin to ETH or ETH to Bitcoin, five basis points you can get on that trade, which is absolutely incredible.

• 23:26David Hoffman?

  Okay, so I have two thoughts here. The Uniswap model of putting Ether against USDC directly and not having an intermediary token, I've always thought was elegant because let's not inject an intermediary token where it doesn't need to be. If people just want Ether and Uniswap, let's not add a third token, which is always why I've been

• 23:47David Hoffman?

  in my previous wars with the Bancorp people. That was more or less the subject of the debate is like, why put in Bancorp as an intermediary token when you can? You have Uniswap and you can just trade assets directly. But I think the counter argument here is that the Thor, the Rune asset is what allows the Thor chain system to maintain non, a non custodial nature. Because if you wanted to trade directly Bitcoin for Ether, you would need to host those assets on the Thor chain system itself. The Thor chain would need to have state of these assets. And then we're kind of back to the bridge problem that we were discussing earlier. Is this correct analysis?

• 24:24Speaker 01

  Yeah, there's primarily two, two reasons for it. One is we don't want to, to, to, to fraction the liquidity across 100 different pools. Right? If you want to get from Ethereum to Bitcoin, whatever it is, we want all that liquidity to be focused in a single pool to give you the best price execution. If you break up into 10 or 30 different pools, that inherently becomes problematic. That's the first reason. The second reason is that.

• 24:47David Hoffman?

  Sorry, just to, just to drive that point home. Rune is, so rather than having Ether trade against Bitcoin and Ether trade against USDC and Ether trade against USDT, Ether just trades against Rune. Rune is like this substrate upon which all assets trade against. And so only adding one new asset doesn't add like 17 different new pools for every single permutation of other assets is everything just trades against Rune.

• 25:15Speaker 02

  Right. Yeah. Think of it like on, on Uniswap. How many pools are paired with USDC? Right? Like at least a dozen big ones. Imagine if there was only one USDC pool on Uniswap. Right? It would be very deep and you get great price execution. The only way to do that in practice is to have an intermediary asset.

• 25:33David Hoffman?

  Yep, understood.

• 25:34Speaker 01

  The other reason why it's really critically important for us is that, I was mentioning earlier about economic security. Right? So if the value of Rune were to dive today, say we're down 80%, whatever it is, the security goes down by 80%. Because each pool is comprised of Rune plus some other asset, the Rune price in the pool obviously is going to go down 80% as well, which means arbitrage bots are going to, you know, put Rune into the pool and take out Bitcoin to ensure that the value of the pool always is less than the value of the security behind it. This is part of, is a critical component. If you don't do that, then you've decoupled the security of the network and the, the value of the assets that you're securing. And you no longer have economic security, which to me is inherently flawed.

• 26:15David Hoffman?

  Okay.

• 26:16Speaker 02

  Yeah, so to state that again, this is a key point that I didn't quite understand the magic of at first. But all the validators are securing the network and they put up exclusively rune. It's their bonds that they put up to swear allegiance and say that they'll be honest. The value of that capital rises and falls in direct proportion of the value of rune. Separately, you have these liquidity pools. And let's say, for example, that rune wasn't paired with each asset, that each asset was paired with USDC or with ETH or something. You could and would often get into situations where the value in the liquidity pools was worth more

• 26:59Speaker 02

  than the collateral state by the validators, right? And as soon as that happens, there's an incentive by the validators to steal money. So, and that's not a tail risk. That would happen often in the vagaries of the market. So when you force half of the liquidity pools to be rune, if rune collapses in price, the value of the liquidity pools also collapses in price, which means that there's never a point at which it makes sense for the validators to steal the money. And that's really the key insight that made this thing work.

• 27:35David Hoffman?

  So it's a natural constraint. It's a natural cap on the non-rune supply of assets into the system. There can only be so much assets into the rune system as there are rune, the rune market cap and percentage of that state, correct?

• 27:51Speaker 02

  Half, yeah.

• 27:52David Hoffman?

  Yeah.

• 27:53Speaker 02

  Mathematically, there can only be half of the dollar value of non-rune assets in the pools as there is rune held by the validators securing it.

• 28:03David Hoffman?

  Right.

• 28:03Speaker 02

  So if there's $10 million of non-rune assets in the pools. There's $20 million of Rune held by the validators. And whenever those numbers get out of that exact ratio, the rewards of the system start changing such that it makes sense for arbitrage to come in and get it back to that point.

• 28:20Speaker 01

  Yep.

• 28:20David Hoffman?

  Interesting. So it's like a naturally balancing system with a constraint, with a cap, right? We can't just flood the system with

• 28:28Speaker 01

  Right.

• 28:28David Hoffman?

  non Rune assets.

• 28:31Speaker 01

  If you wanted to get a Bitcoin multi-billionaire just to deploy everything they had into the protocol, the protocol wouldn't even allow it. It just would say, we can't do that. We would lose security and security is important. This is too much, right?

• 28:43David Hoffman?

  Okay, I would imagine that a lot of the activity that is flowing through Rune is denominated in probably the fat side of the tail of assets, probably I'm guessing Bitcoin. Probably Bitcoin actually, since it's the one that has, it doesn't really have an internal DeFi system. What is the activity that is flowing through the Thorchain system?

• 29:02Speaker 01

  Yeah, by far it's Bitcoin and Ethereum are the two largest. And that makes sense because if you just look at the trading pairs and C-Fi, you know, such as exchanges.

• 29:11David Hoffman?

  Matches that.

• 29:12Speaker 01

  It matches that where people trade Bitcoin to Tether and Bitcoin to ETH. And like, that's the magic, right? And it's kind of crazy that we are, you know, it took us so long to get to a point where like, we can do that in a decentralized way. Right? Of the most important pairs in crypto. And now that we've done that as a protocol, as Thorchain has done, we are now seeing about 2% of the trade volume of Bitcoin is now happening on a DEX for the first time in history. And we're just getting started.

• 29:42David Hoffman?

  2% of the total Bitcoin volume globally across all exchanges is happening on Thorchain.

• 29:47Speaker 02

  Spot volume, yeah.

• 29:47David Hoffman?

  Spot volume, yeah.

• 29:48Speaker 01

  Yeah, spot volume.

• 29:50David Hoffman?

  That's not, that's no small number.

• 29:52Speaker 01

  No, it's not.

• 29:52David Hoffman?

  Especially when we've been trying to rip the location of price discovery away from centralized exchanges from a long time.

• 29:59Speaker 01

  Right. And a large reason why this happens because we had this new thing I mentioned earlier called streaming swaps just creates incredible capital efficiency. Where now, if you want to buy and sell Bitcoin, Ethereum, whatever asset you want to do, you can do it cheaper, more, better price execution on Thorchain than any sex or any DEX on anywhere.

• 30:20Speaker 01

  Anywhere. It's kind of crazy to think about, but it's actually true. And to kind of put like a pin on this, this is like a real thing that happened last weekend. Somebody traded $6 million in a single transaction from Bitcoin to W B E C. The W B C pool is only $4 million deep. The trade was larger by 50% than the actual val- the trade was larger than the actual value of the pool itself. But because of the capital efficiency of streaming swaps, it executed just 45 bips paid in fees. That's unheard of in the AMM world. It's like, it's ridiculous in the AMM world. Like, nobody would even believe me if I fucking told you, but I'm telling you, it happened.

• 30:58Speaker 02

  And importantly, the way that works is the streaming swap happens over a duration of time. So that trade happened over probably a few hours. But the end result was a trade 50% larger than the than the pool, happening over a few hours at like a price almost competitive with a centralized exchange.

• 31:17Speaker 01

  Yes. And what's crazy is because you can have a relatively illiquid pool, like a $4 million, you know, pool for W B C, and do these massive $6 million trades, the fees that you're generating is massive relative to the size of the pool. Right? So the yield on Thor Chain, whether you're a saver, whether you're an LP or whatever, is just like through the roof like crazy. Because we have the trade volume of a Curve or a Pancake swap, but we have the TVL that is 1/5th or 1/6th of them. So there's a lot less mouths to feed. So the the real yield we're generating right now is ridiculous, right? It's like, some are like, like right now, the Bitcoin pool, you're 100% A P Y in this current moment, of actual real yield from actual trades actually happening in the network, right?

• 32:02Speaker 01

  If you want to do a Bitcoin saver, which is basically no rune exposure, just Bitcoin exposure, and you just get Bitcoin yield on your Bitcoin, no I L, nothing to worry about in that regard. Even that, right now, is about 7% or 8% yield on that, which is absolutely ridiculous. Ethereum, I think it's like, I think it was 16% yield in Ethereum, which is just crazy.

• 32:21David Hoffman?

  What is the latency time for a trade? And Eric alluded to it being also a function of size. How does just time of trading work?

• 32:30Speaker 01

  Yeah, so when you do a stream and swap, you are taking one large trade and you're breaking up into little sub-trades and you're trading it over time. How fast that is, is depending upon a number of things. For one, you can choose how fast you want it to be. You can say every block do a trade or every 10 blocks do a trade. Or you can, you can do a DCA if you want. If you want to like dollar cost average buy into Ether or something like this, could totally do that on Thorch in over a longer period of time. But you can choose that, right? But then the network also says that it has a lower barrier of five bips that you can pay on your price execution. So it depends on the depth of the pools you're trading with. The more shallow they are, the kind of the, the, the smaller each individual trade has to be to maintain that five bips fee.

• 33:15Speaker 01

  And the more time it's going to take. So naturally, as we grow, we have about 300 million in TV right now. And so say we get to a billion or a billion and a half or something more similar to Curve or, you know, or Pancake or whatever, we would have orders of magnitude improvement in terms of speed.

• 33:31David Hoffman?

  Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world. And now something big is happening. Introducing the Cello Layer 2. It's a game-changing proposal that's going to bring Cello's rapidly growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Cello Layer 2 on the Cello Forum. So has Ben Jones from Optimism. But why? The Cello Layer 2 will bring huge advantages like a decentralized sequencer, off-chain data availability and one-block finality. What does all that mean? Rock-solid security, a trustless bridge to Ethereum and more real-world use cases for Ethereum without compromise. And real-world adoption is happening. Active addresses on Cello have grown over 500% in the last six months. With the Cello Layer 2, gas fees will stay low and you can even pay for gas using ERC20 tokens.

• 34:14David Hoffman?

  But Cello is a community-governed protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello Forum. Follow @celloorg on Twitter and visit cello.org to shape the future of Ethereum.

• 34:28David Hoffman?

  Introducing USDV, a better type of stablecoin. Currently, billions of dollars in stablecoin yield each year are paid to Tether, Circle, and other central issuers of major stablecoins. But what if yield could be shared with the protocols that use it? Those protocols, in turn, can decide how to reward their users. USDV shares its yield with a community of apps and developers that mint it. Every USDV is backed one-to-one by US Treasury bills which pay yield. This yield flows out to the community of USDV issuers, so your protocol or app can get paid for helping end-users convert other stables into USDV. This works thanks to a breakthrough technology called ColorTrace from Layer Zero. Without it, it was impossible to attribute users of a token with a specific issuer. But now we can.

• 35:11David Hoffman?

  USDV is live on Ethereum, Optimism, Arbitrum, and other chains, and is already available on over 20 exchanges such as Curve, Bitget, Velodrome, and Stargate. Start participating in the yield from Treasury-backed stablecoins at bankless.com/usdv. Introducing GMX, the deepest on-chain futures market to trade Bitcoin, Ethereum, and leading altcoins. GMX is a permissionless decentralized exchange that offers perpetual futures and spot trading, lightning-fast trade execution and competitive pricing, with the security and self-custody of a decentralized exchange. GMX is live now with V2, bringing new optimizations to on-chain leveraged trading. And even more than an improved trading experience, GMX will reward you for just participating. All GMX users can easily set up a referral link,

• 35:57David Hoffman?

  and with $12 million of Arbitrum grants being distributed as incentives, and over $150 billion in trading volume today all settled on-chain, GMX is leading the charge in terms of opportunities for DeFi liquidity providers. The future is on-chain with your wallets, with your trades, and with your money in your own hands. Try it out now at app.gmx.io. Eric, when you put on your, uh, the hat that you once upon a time put on, all the way back in like 2012, 2013, when you looked and daydreamed about the future of crypto, I would imagine some shape of Thorchain was like kind of in that daydream way back when. How do you, uh, how do you like think that Thorchain will impact or change the crypto landscape like moving forward? Like, what do you think about, uh, when you look about Thorchain's role for shaping the future of crypto?

• 36:43Speaker 02

  Yeah, so it's important for the ecosystem for one very simple reason, which is that the largest digital asset in the world can now be traded without any intermediaries for the first time.

• 36:54Speaker 02

  It's horribly embarrassing that 12, 13 years into the Bitcoin project, 100% of the spot trading of that asset was going through centralized intermediaries. Right, there, of course, there's a little bit of trading that happens peer to peer at Starbucks, but not not any material number. And so we had this incredible, beautiful decentralized monetary base, and all of the trading of it is happening on centralized exchanges.

• 37:25Speaker 02

  That was a big problem, and I think a lot of the Bitcoiners just accepted that. You know, like many of them haven't been willing to experiment with other chains and other tokens because they are wedded to the idea that other chains and other tokens are always worthless. And we see in the Ethereum world, all this experimentation with with DeFi, with smart contracts and Uniswap and Bancor, like when they created that model of the AMM, that was an incredible breakthrough, so that now you could trade assets without any intermediary in this frictionless way. And users with spare capital can earn fees on that. That was an incredible innovation. And yet it didn't support Bitcoin, and this was like so tragic.

• 38:08Speaker 02

  So Thorstein now has existed and has been live for two and a half, three years. It's amazing how few people still know about it, especially people that want to go in and out of Bitcoin, right? Like the two major assets, if you want to trade them without an intermediary, there's one place to do it. So that's why that's why this is so cool and so important. And ever since I saw it, I fell in love with it, you know, both as it was an echo of what Shapeshift was doing back in the day, but just like as a critical piece of infrastructure for this entire space.

• 38:40David Hoffman?

  Chad, is there a notion of apps on ThorChain? Is there like an application layer to ThorChain? Or is it more narrow in that it just wants to do this one job, which is cross-chain asset swaps and do it extremely well?

• 38:55Speaker 01

  Yes, it's much more narrow. So there is no smart contracting on top of ThorChain itself. There's no CosmWasm or Solidity or something of the nut, something of the such. It does, it has expanded to other kind of concepts over, over time. So we started with the AMM, which is really great. We moved to something called Synthetics for highly efficient. It gives like a 15x capital efficiency, which is great. We moved to what we call savers, which is like a single asset yield, right? That you would get, deposit a single asset and get yield on that asset without IL risk or any of these kinds of things. We also moved to our lending design where our lending design is, can you deploy Bitcoin as collateral? We can do Ethereum as collateral and actually get, you know, a loan out, right? And this loan is 0% interest, no liquidations whatsoever,

• 39:40Speaker 01

  and no expiry, which is truly transformative or novel concept of how you can actually structure a loan is very different than done here. So we've expanded to also to other DeFi kind of focused concepts to, to say that we can build DeFi in a way that is chain agnostic, that is asset agnostic. We can build DeFi in a way we can give the same access that Ethereum people have had for years now around the power, flexibility you can do with Ethereum and the other assets on that chain. Now you can do that same kind of stuff with assets that are have a long time been isolated, like Doge, like Bitcoin, like, like Coin, like whatever else. And so to do that, to, to, to apply DeFi to the entire crypto space,

• 40:22Speaker 01

  not just to specific EVMs is a quite important and transformational technology for the industry.

• 40:28David Hoffman?

  Does ThorChain have a roadmap? Like what's next for the project? What are you working on, Chad? As, as one of the bigger code contributors to the project? What, what's next?

• 40:37Speaker 01

  So we've exploded over the last few months. We went from like the 12th or 11th largest DEX to now with a third. We just surpassed Curve, right, in terms of trade volume. So we've had this huge explosion over the last few months, which has been awesome. But it's also kind of stretched the system in a lot of ways. Our bots kind of got stretched even themselves. So we've been making a lot of changes to just to improve the efficiency and and performance of the network. But once we kind of fixed a few things we wanted to get done, which we'll probably get done in the next few weeks, it's moving back towards a feature where we can only trade with Thor Chain from any wallet in the world arbitrarily. Any wallet in the world could actually trade or swap with Thor Chain, which would be really valuable. And the other thing I'm actually hyper excited about is order books and limit orders.

• 41:22Speaker 01

  And being able to expand this network, not just to like swappers, but to traders, to people who actually want to to expand to an entire new marketplace, right? And the other thing that's really fascinating about limit orders on Thor Chain is that because you ARBs can arb proactively rather than reactively, you that streaming swap we were talking that happens over time, that streaming swap can happen in a single block with the same price execution as if it happened over time. Because the arb bots can arb within the block and swap back and forth between each other to get that speed of a single like regular swap like you see on Uniswap, but the fantastic price execution of a streaming swap, like the best of both worlds put together. I'm really excited about that.

• 42:04David Hoffman?

  And then if you are looking to get talent or new community members or looking for contributions in the space, who, what kind of people are you looking to reach out to here after this podcast?

• 42:16Speaker 01

  Well, one of the things we're constantly doing is looking to expand into like integration partners, right? So we've been connecting with a lot of different wallets. We've been talking to Ledger. We've been talking. They got integrated. MetaMask is now integrated thanks to Shapeshift's work. Trust Wallet is integrated, all these kinds of things. And so we have lots of wallets we're talking to right now to kind of further expand our integrations with more things. It's kind of non-surprising, but a lot of wallets want to be able to trade between Bitcoin and Ethereum in a trustless manner. That's not all that surprising, but they're really into it for some reason, right? And so we've been talking to a lot of different wallets who are really interested in that. So if you know a wallet that would like to do that, or a UI, or even better, if you've got a DEX, we've already integrated with Trader Joe and a bunch of different DEXs from other environments. We can cross-chain.

• 43:02Speaker 01

  Do daisy chain multiple DEXs together to give you any asset to any asset in a single transaction, which is absolutely fantastic and fascinating. So if you are a DEX and you want to integrate and you like have Bitcoin trading on your DEX, even if it's on AVAX or Ethereum or whatever it is, come talk to us. We can help you out.

• 43:22Speaker 02

  Yeah, so important point. So like in Uniswap, obviously, biggest DEX in the world and you can't buy Bitcoin, right? This is a problem. Uniswap, folks, hopefully you're hearing this. I know you've been approached about this before, but it would not be too hard to allow someone through the Uniswap interface to trade, you know, USDC on ETH into Bitcoin. And what would happen in the background is that the trade is going into the USDC whatever pool on Uniswap and then trading probably the most liquid asset like ETH for Bitcoin in Thorchain in the background and then Bitcoin is what gets spit out the other end.

• 44:00Speaker 01

  Yep.

• 44:01Speaker 02

  Obviously, Uniswap should do that, right? Wouldn't be too much work and could be done with a really good UX for their users.

• 44:08Speaker 01

  Yep.

• 44:08David Hoffman?

  Well, Chad, Eric, this has been a fantastic exploration into Thorchain. So thank you for helping navigate me and the Bankless Nation through this pretty cool project. Chad, if there are people that just want to get, learn more, for example, where should they go? Where is the canonical like Thorchain website or Twitter account or wherever you want to point people?

• 44:24Speaker 01

  Yeah, so the Thorchain website is thorchain.org, @Thorchain on Twitter. We got Discord, jump on the Discord, ask questions, you know, if you want to learn more about this project, it's quite fascinating and quite important. So I encourage everybody just to learn. Don't buy, don't bother buying the token. I don't really care. Just do your own research, learn about it. The more you read about it, the more you're gonna love it. I promise.

• 44:48David Hoffman?

  Eric, you handed me some material that we'll put into the show notes at the end of this, an introduction to Thorchain for Bitcoiners that you wrote, as well as a few other articles. Or any other things you want to bring up to attention before we wrap up the show here, Eric?

• 45:00Speaker 02

  No, I would just echo the point of like, try this out, right? Like, everyone should, everyone in crypto should try an ETH to Bitcoin transaction through Thorchain, like as part of your learning of how to use these systems. And so, you know, spend an hour, learn how to do that. And you'll understand why those of us who have learned about this are so excited.

• 45:22David Hoffman?

  Well, Eric, Chad, thank you so much for coming on to the Bankless Podcast and exploring through our chain. I appreciate it. Bankless Nation, you guys know the deal. Crypto is risky. All things are risky. New things are always risky. Smart contracts are risky. DeFi is risky. But this is the future that we are all signing up for. So we are glad you are with us on the Bankless journey. Thanks a lot.