RUNE Token

RUNE is the native token of the THORChain ecosystem, playing a crucial role in its functionality and governance. Its tokenomics are designed to support the protocol’s decentralized liquidity network, balancing security, utility, and incentives.

• RUNE is used in the THORChain blockchain for transaction fees and by Liquidity Providers (LPs) to provide liquidity, helping to earn yield through fees.
• Node operators, or Thornodes, bond RUNE to secure the network and sign transactions.
• RUNE serves as an on-chain governance asset, influencing decisions such as node priority, asset listing, and chain integrations.

• Network participants, including Node Operators and LPs, receive emissions and rewards paid in RUNE, contributing to the network’s ongoing security and functionality.
• RUNE allows the minting of synthetic assets for cross-chain savings accounts.

Types of RUNE Tokens

• BNB.RUNE and ETH.RUNE: These wrapped versions of RUNE, based on Binance and Ethereum respectively, are set to be phased out. They currently lack the functionalities like liquidity provision and network security bonding.
• THOR.RUNE (Native Rune): Only the native RUNE is used on THORChain, and it must be upgraded from the BNB/ETH-based versions for productive use in the ecosystem.

Tokenomics Details

• Max Supply: The total supply of RUNE tokens is capped at 500 million.

• Distribution: A significant portion of the supply (44.1%) is allocated to ecosystem rewards, ensuring long-term incentive alignment among participants.

RUNE’s Market Impact

RUNE’s role in THORChain’s ecosystem, including its functionality as a settlement asset and its involvement in governance, makes it a crucial part of the protocol’s operation. Its tokenomics structure is designed to encourage active participation, network security, and decentralized governance, which are vital for the protocol’s health and success. The phased transition from wrapped RUNE tokens (BNB.RUNE and ETH.RUNE) to the native THOR.RUNE is a strategic move to streamline the token’s utility within the THORChain ecosystem. This transition underscores the emphasis on making the native RUNE the central token of the ecosystem, enhancing its effectiveness and simplifying user interactions.

RUNE’s implementation as a utility and governance token reflects a broader trend in decentralized finance (DeFi) of tokens serving multiple roles within their respective ecosystems. This multifunctionality is a key characteristic of successful DeFi projects, demonstrating the versatile nature of blockchain technology in creating comprehensive, user-centric financial systems.

Liquidity Pools, Swapping, and Yield Generation

Thorchain offers a dynamic environment for liquidity, swapping, and yield generation, primarily driven by its innovative approach to managing liquidity pools and swap mechanics.

Liquidity Pools on Thorchain

Liquidity pools on Thorchain are the foundation of its trading mechanism, allowing users to swap assets seamlessly. These pools use the Continuous Liquidity Pool (CLP) model, a variation of the traditional XYK model. The CLP model is designed to adjust the fees based on the pool’s liquidity demand, ensuring a fair cost for the transaction’s impact on the pool’s liquidity. This system is sensitive to market dynamics and encourages more balanced and efficient trades.

In practical terms, when a user contributes to a liquidity pool, they are awarded pool units proportional to their contribution, determining their share of the pool’s rewards. The more significant their contribution relative to the pool, the higher their potential yield from transaction fees. This encourages both participation and stability within each pool.

Swap Mechanics and Fees

Thorchain’s swap functionality is enhanced by the Slip-based Fee Model, which varies the transaction fees based on the liquidity demand in the pool. This model effectively prices trades according to their impact on the pool, penalizing large, hasty trades that could destabilize the pool, while rewarding patience with lower fees.

There are two key swap strategies on Thorchain: time-optimized and price-optimized. Time-optimized swaps are executed quickly regardless of the cost, whereas price-optimized swaps aim for the best possible price, even if it takes longer. This flexibility allows users to choose a strategy that best suits their needs, whether they prioritize speed or cost-efficiency.

Yield Generation

Yield generation in Thorchain is closely tied to participation in liquidity pools. By contributing to these pools, users earn a share of the transaction fees generated from trades within the pool. The yield is proportional to the user’s stake in the pool, creating an opportunity for passive income through staking assets. Moreover, Thorchain’s system is designed to be transparent and accessible, allowing users to track their staked assets and yield returns easily. This transparency is crucial for building trust in the system and encouraging broader participation.