THORChain (RUNE) is up nearly 41% over the past seven days, according to data from Cointelegraph Markets Proand its recent price action is even leading the entire crypto market the first quarter of 2021. The mainnet launch, originally scheduled for last year, is one of the main factors that led to the recent price surge. But the other factor that has added momentum is the integration of synthetic assets into its network. Why was this such a big deal and how does it affect the future of THORChain?
THORChain is often compared to Uniswap as it offers traders the ability to exchange different tokens. The only difference is that THORChain allows users to trade Layer 1 coins in a decentralized manner, while Uniswap is limited only to the tokens that comply with the ERC-20 standard. Users can essentially exchange their bitcoin (Bitcoin) for ether (ETH) on THORChain without using a centralized exchange, and it Expectations have processed more than 1.64 million transactions since inception.
The addition of synthetic assets to THORChain is expected to increase network usage. Synthetic Assets are of course virtually tokenized derivatives where they mimic the value of another asset. Synthetic assets or synthesizers track real-world assets such as stocks, commodities or even cryptocurrencies and traders use them for various reasons such as:
THORChain synthesizer under the hood
THORChain allows users to mint synthetic versions of cryptocurrencies ranging from BTC to Aave (AAVE). To do this, users add either RUNE or the actual crypto asset to a THORChain liquidity pool. THORChain synths are quite different from other synthetic assets as THORChain synths are not only backed by the underlying asset and do not require a high collateral ratio.
For example Terra (LUNA) The Mirror protocol, another synth minting platform, has a 150% collateralization rate. A THORChain synthesizer, on the other hand, is backed by a liquidity pool that contains 50% RUNE and 50% of the underlying asset. This is done by collateralizing pool property.
No temporary loss
One of the main benefits of THORChain is that it eliminates fickle losses achieved through its log structure. THORChain maintains a reserve pool of RUNE tokens from which it extracts to pay block rewards for node operators and liquidity providers. It is also the same pool from which the system draws the tokens needed to offset any difference between the exact value of the synthetic asset and that of the actual asset upon redemption, preventing temporary loss.
Liquidity providers will have a linear impermanent loss protection for 100 days, which means 1% protection every day until full 100% coverage is achieved. At the time of writing, the reserve holds RUNE worth almost $1 billion, although it actually broke the billion dollar mark a few months ago. However, the reserve is depleted by such token outflows filled up through network fees such as transfer fees and outbound fees (each chain’s gas cost multiplied by three).
How synthesizers benefit users
Aside from the aforementioned trading benefits, THORChain synths are also cheaper to swap out than Layer 1 assets, while swap fees are reduced by 50% when swapping asset-to-synth, synth-to-asset, or synth-to-synth. But perhaps the main selling point offered is an uncomplicated and more lucrative way to yield farms. THORChain also has an opportunity in its pipeline for synthesizer owners to earn a return simply by locking their assets in a vault. This makes the process accessible to newer participants as they would no longer need to understand the concept of liquidity pools and the risks of temporary loss.
THORChain also integrated with Terra and catalyzed RUNE’s first March rally. Lending and borrowing are also coming to the THORChain ecosystem through June 17th. Because of this, many were optimistic, even naming a target of $11.50 for RUNE. Can RUNE continue its rally in the second quarter?
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https://cointelegraph.com/news/rune-rally-a-closer-look-at-thorchain-s-new-synthetic-assets A closer look at THORChain’s new synthetic assets