Deciphering THORChain

THORChain is a decentralized liquidity protocol that stands out for enabling the exchange of assets across different blockchains in a permissionless and non-custodial manner. It’s built on the Cosmos SDK and operates as an independent Layer 1 cross-chain decentralized exchange (DEX). The protocol employs a liquidity pool model, similar to other protocols like Uniswap or Bancor, and is powered by its native liquidity token, RUNE. This token plays a crucial role in the network’s security and functionality, as it deterministically accrues value with more assets deposited into the network.

One of the innovative aspects of THORChain is the Bifröst Protocol, which facilitates the connection between different blockchains. Nodes in the network run a Bifröst service that allows them to recognize and process inbound transactions from various blockchains, converting them into THORChain transactions. This allows for native asset settlement between multiple blockchains like Bitcoin, Ethereum, and others without the need for wrapping or pegging assets, thereby preserving the decentralized nature of the asset exchange.

THORChain’s architecture also includes advanced cryptographic techniques like Threshold Signature Schemes (TSS) and Byzantine Fault Tolerance, which help secure the network. It functions as a proof-of-stake blockchain, allowing users to swap native assets across Layer 1 blockchains without losing custody of their assets to a central authority, which is a common concern with traditional centralized exchanges.

Relating this to the image you’ve provided, which humorously demands to know where the yield comes from in an assertive manner, it touches on a crucial aspect of decentralized finance (DeFi) platforms like THORChain: the source of yield or returns for investors. In the case of THORChain, the yield primarily comes from trading fees and liquidity incentives. Users who provide liquidity to the pools receive a portion of the trading fees as well as additional incentives in the form of RUNE tokens, which can appreciate in value as the network grows and more assets are deposited.