Decentralized Exchange Protocol
Current blockchain solutions suffer from several problems, including scalability and the difficulty of moving assets securely from one blockchain to another. The recently launched Thorchain project is developing a global payment and liquidity protocol based on a scalable multi-chain blockchain solution. The primary use case for the blockchain is a decentralized cryptocurrency exchange.
The ambitious project does not only promise to deliver a very high-throughput blockchain solution with built-in protocols to ensure liquidity and interoperability with different chains but also uses an innovative funding model for its ongoing token sale.
Moving tokens from one chain to another is a requirement becoming more and more common in the blockchain landscape. Different use cases have led to the development of very different blockchains and the ability of trading assets between these chains is a necessity. Doing this in a decentralized fashion, meaning without a custodian service acting as an intermediary, is not trivial.
Thorchain specializes in decentralized inter-blockchain asset trading through a number of features. Firstly, the blockchain is organized in multiple chains, joined by a so-called MerkleChain. Each chain represents a token and uses the MerkleChain for cross-chain communication and storing the root of its state tree, in order to prevent double spending.
Secondly, the built-in Bifröst protocol provides a secure and scalable mechanism for building bridges between Thorchain token chains and external blockchains. These bridges allow assets to be moved between Thorchain and other blockchains atomically in a decentralized way.
The above interoperability features make it possible to build decentralized exchanges. In fact, the Thorchain project is developing such an exchange on top of the underlying blockchain. This can be achieved by modeling chains such as Bitcoin or Ethereum as Thorchain token chains, bridged to the external chains. Moving externals asset onto their Thorchain equivalent token chain allows these assets to be traded.
Another property of Throchain aimed at decentralized exchanges is a built-in support for continuous liquidity pools (CLP). The problem with asset trading is finding sellers for buyers and vice versa. Especially, for less popular assets, the exchange might not have the liquidity to fulfill orders. CLPs counter this problem by locking assets into the liquidity pool. Trading prices are calculated as a function of the liquidity depth of each pool.
Thorchain complements these interoperability features with a number of scalability solutions aimed at reaching the high transactions throughputs required by payment networks of a global scale. To this end, the multi-chain approach uses an efficient delegated proof of stake consensus protocol governed through the Æsir on-chain governance protocol. Furthermore, the novel sharding protocol, Yggdrasil, eases the load on individual validators, in order to maintain a high overall transaction throughput. Finally, the Flash Network, provides an off-chain payment channel network, to further improve throughput and latency.
Ongoing Funding and Development
The Thorchain project is in active development. The Genesis testnet is currently live and a series of milestones and test network releases are scheduled. Project funding is ongoing, using an innovative token sale model. Thorchain’s Rune tokens for sale are distributed over 10 milestones. Tokens bought within a development milestone are released immediately, once the milestone is reached. The total funding goal for 18 months is 40 million USD.
In addition to the Rune token, a number of non-fungible collectible assets are released at fixed points in the token distribution, awarding the owner certain advantages on the Thorchain platform, such as free trading fees or priority transactions.
Disclosure: The author serves as the Chief Scientist for the Thorchain project.