Interchain Jam Highlights: THORChain Goes Interchain

Interchain Jam Highlights: THORChain Goes Interchain recaps the live X session hosted by the ICF’s Robb Stack. In this edition, we hear about THORChain’s journey as a “liquidity hub,” its experience building with the Interchain Stack, the unique pain points and challenges THORChain has as one of the original appchains, and why co-founder JP believes the Interchain Stack is the “gold standard” for building sovereign chains today. Let’s go!

THORChain — Decentralized Cross-Chain Infrastructure

One of the first projects to adopt Cosmos SDK and prove the appchain thesis, THORChain is a liquidity hub facilitating native asset settlement between Bitcoin, Ethereum, BNB Chain, Avalanche, Cosmos Hub, and more. Secured by its native token, RUNE, which deterministically accrues value as more assets are deposited into the network, anyone can use THORChain to swap native assets between supported chains or deposit their assets to earn yield from swaps.

THORChain co-founder JP explains, “THORChain allows you to swap Bitcoin and ETH. To do that, you need to have Bitcoin and ETH liquidity and secure that Bitcoin and ETH with minimal trust assumptions. THORChain wants to provide that for decades to come and as critical infrastructure so that you can use a future wallet or service and you can swap your Bitcoin and ETH at unbeatable price executions, speed, and security, and you won’t need to know THORChain provided that liquidity flow. You can just move between these chains without any second guessing.”

The founding team began building the project in 2018, but THORChain remains highly community-centric today. JP says, “THORChain is still going through its founding phase. Anyone who contributes to THORChain in a meaningful way can call themselves a THORChain founder… community members, node operators, wallet developers… we’re all building THORChain.”

Why THORChain Chose Cosmos SDK

JP says that back in 2018, few solutions were available to projects wanting to build sovereign appchains. The team looked at Polkadot and Hyperledger but neither ecosystem suited its needs. After reading Jae Kwon’s 2014 whitepaper, Tendermint: Consensus without Mining, the team to the Cosmos ecosystem. JP says:

“The best thing about Cosmos [SDK] is that it works and it is expressive. It was easy to spool up a chain. It was easy to spool up the state machine environment… and it gave us the killer thing that we did, which was tie in liquidity fees with consensus itself.”

He goes on to say the reason problems with MEV (maximum extractable value) exist on other chains is that “there is no way to share application fees with the base layer,” which results in undesirable practices such as frontrunning by bribing block producers and validators with the margins of the application fees. “MEV destroys the user experience,” JP says because the margin either goes to “off-chain revenue holes” or is bribed to a narrow set of block producers who can earn much more than the rest, resulting in the centralization of the chain. “So it just kills the chain,” he says.

“With THORChain, we’re able to share the application fees, which are the swap fees and liquidity fees, with consensus itself, the nodes, and that is the breakthrough. That’s why THORChain is still alive today; because there’s no MEV and all the application fees are shared at the baseline. One of the key parts was to tie in application revenue with the baseline. That was only possible with a mature, expressive state machine like Cosmos SDK.”

Pioneering the Appchain Thesis

An early project with distinct needs, THORChain is a true pioneer of the appchain thesis, showing how a chain can develop according to its unique rules and requirements. Tyler Bond, who manages BD and Comms for THORChain and Nine Realms, one of the core development teams for THORChain, says, “It’s a big part of THORChain’s story, how we do things a lot differently than a lot of other Cosmos chains. We don’t use a lot of the modules that other Cosmos chains do as none of them existed when THORChain was first coming up.”

JP provides an example of a THORChain module written specifically for its use case, “message send.” The team didn’t like the user experience of having to nominate a gas limit and gas price, preferring to charge a flat fee instead. So, THORChain’s message send charges a flat fee specified by the protocol and ignores the gas limit and gas price. “Now we’re actually wrapping it with the default one,” JP explains, “to make it compatible with Keplr, LeapWallet, and all the other wallets… getting us up to the standard of the modern modules and upgrade paths.” As THORChain prepares to enable IBC, the team is also upgrading the rest of its modules to make it compatible with more Cosmos SDK-based chains.

Enabling IBC

Having built with interchain tech since 2018, why is THORChain enabling IBC only now? JP explains that the team had long admired IBC’s vision but waited for its latest version (ibc-go v 9) with multi-channel forwarding, automatic unwinding, and mass token forwarding to enable its vision as a liquidity hub. He affirms:

“The latest version of IBC is really good, really expressive, and it is the right time.”

THORChain is going through a major shift enabling DeFi apps to build on top of layer 1. “We can shift more of the financial architecture to that app layer to have a faster speed to market and more developers building on THORChain. We can also find a base layer and just focus it on change rate integration, streaming swaps, and liquidity rewriting.”

Tyler emphasizes the importance of THORChain as a liquidity hub, connecting major chains like Bitcoin, IBC-connected chains, EVM chains, and Cosmos chains. IBC will help connect these chains seamlessly, increasing liquidity. He says:

“IBC is just one of the pieces that’s really going to help us connect to a lot of different chains with a comparatively little amount of effort. We can connect individual chains one by one but with IBC, we get access to dozens of them with just one type of connection.”

JP highlights the importance of Interchain Accounts, which grants mint authority on other chains, allowing THORChain to mint representations of assets like Bitcoin, Solana, and Ethereum as native coins on THORChain and forward them to other networks via IBC. “For the first time ever, we’ll be able to mint and send out wrapped Bitcoin, wrapped Ether, wrapped Sol on other networks and populate that,” he enthuses.

IBC will enable THORChain to be the most decentralized wrapped Bitcoin provider with around 105 counterparties versus smaller wrapped networks which may only have a “3 out of 5 multisig… that’s really exciting,” he says.

Sustainable DeFi Growth

THORChain is focused on ensuring sustainable growth for the platform by optimizing fees for decentralized swaps. Initially, THORChain had a fee structure of 3 BIPs, significantly lower than its competitors, before realizing it was underselling swaps and increasing its base fees to 15 BIPs, making THORChain “almost fully sustainable.” THORChain now generates between $200,000 to $300,000 in total system income per day, with liquidity fees accounting for 35%-40%.

Looking ahead, THORChain’s liquidity fees will asymptote to 50% of its income at any given time, as some of the fee collection is reinvested into the reserve. This ensures that there will be infinite block rewards due to the reserve being constantly topped up. In addition, not only does THORChain pay its nodes, liquidity providers, and core development team, but it is also paying its wallet integrators well, “around $18 million this year alone,” providing them with a strong incentive to integrate THORChain’s services into their platforms. TrustWallet and OKX have already integrated THORChain’s services, with other major wallets and exchanges set to follow suit.

As the market shifts toward on-chain transactions, THORChain is well-positioned to capitalize on this trend. By integrating IBC and features such as DEX aggregation, THORChain aims to create a seamless and unified user experience, bridging the gap between multiple chains and assets. Users will be able to swap assets across different L1s and L2s in a single transaction, easily moving funds between ecosystems such as Solana, Bitcoin, Telegram, Doge, Litecoin, and other UTXO chains.

Joining the Internet of Blockchains

THORChain is currently undergoing upgrades to enable IBC but the team expects to be ready by the end of this year. JP enthuses:

“We’re super excited to finally join the internet of blockchains… I personally think that the modern Cosmos state machine plus CosmWasm plus IBC is the gold standard appchain.”

Stay up to date with THORChain by following them on X and learn how to use THORChain through TC University on Discord. Be sure to tune in to the next live Interchain Jam Session, IBC for Everyone, on Thursday, October 10 at 2 PM UTC to find out more about IBC’s first ideathon and how you can contribute.