Macauley Peterson


<p>The hidden costs of centralization have been on display in spades this year, between the bankruptcies of centralized lending platforms and exchanges, <a href="https://blockworks.co/tag/ftx" target="_blank" rel="noreferrer noopener">especially FTX</a>. Non-custodial decentralized exchange (DEX) ThorChain, meanwhile, has flown under the radar — despite its unique connection to Bitcoin and growing user base.</p>



<p>The DEX is known for being the first — and by far the largest — to facilitate cross-chain swaps between native bitcoin and other networks. Previously, this kind of cross-chain asset transfer required a centralized exchange like Binance or Coinbase: Deposit bitcoin, sell for ether and withdraw to Ethereum — or use a custodial wrapped asset, such as <a href="https://blockworks.co/price/wbtc" target="_blank" rel="noreferrer noopener">WBTC</a>, on Ethereum.</p>



<p>That’s the main problem that developers of ThorChain — which is based on the <a href="https://blockworks.co/tag/cosmos" target="_blank" rel="noreferrer noopener">Cosmos</a> software development kit (<a href="https://www.blockworksresearch.com/glossary#cosmos-software-development-kit-sdk" target="_blank" rel="noreferrer noopener">SDK</a>) — set out to solve. The network beta version launched in April, 2021.</p>



<blockquote class="wp-block-quote">
<p><strong>“Instead of trying to bring bitcoin to DeFi via a wrapped asset, let’s bring DeFi to bitcoin,” Chad Barraford, the project’s technical lead, told Blockworks.</strong></p>
</blockquote>



<p>The DEX is conceptually “asset agnostic,” with Barraford likening the notion of being locked into any one crypto ecosystem as “like being a computer manufacturer that will only sell to Japan.”</p>



<p>There have been some forks — attempts to improve on ThorChain’s open-source code — such as Maya Protocol, and Chainflip, but, according to Barraford, “there hasn’t been a design for interacting with bitcoin that maintains economic security, other than ThorChain.”</p>



<h3>Improving the utility of Bitcoin and DeFi user experience</h3>



<p>ThorChain’s integration with <a href="https://blockworks.co/price/twt" target="_blank" rel="noreferrer noopener">Trust Wallet</a>, a self-custodial, multi-chain wallet provider, is a move to expand the user base of both: Trust Wallet — which is <a href="https://www.binance.com/en/support/announcement/binance-acquires-trust-wallet-a-secure-mobile-crypto-wallet-360010790652" target="_blank" rel="noreferrer noopener">owned by</a> the world’s largest centralized exchange, Binance — brings 10 million active users, a spokesperson told Blockworks. Thorchain, meanwhile, has logged about 62,000 addresses and 9.3 million transactions over its history, according to the <a href="https://thorchain.net/dashboard" target="_blank" rel="noreferrer noopener">latest data</a>.</p>



<p>Blockworks Research analyst Dan Smith said the integration is a significant step.</p>



<p>“People like simplicity,” Smith said. “[You] don’t have to use a site you are unfamiliar with.”</p>



<p>ThorChain, after all, hovers among the top four options in terms of bridge volume, and even did a stint at No. 2 during the peak of the November FTX-driven sell off.</p>



<p>The biggest problem, as many DeFi projects are discovering, is liquidity, according to Barraford.</p>



<p>“The more shallow the pools are, the higher the swap fees will be,” he said. “We do a slip-based fee model, not a straight 30 [basis points] like Uniswap]. At some stage it’ll be uncompetitive, like right now the pools are very very shallow, largely because it’s a bear market.”</p>



<p>That pushes up transaction fees as a result of slippage between traded assets. If ThorChain can attract enough liquidity, the swap fees can drop to become even cheaper than Binance, as they already were during the height of the last bull market.</p>



<p>A new product, “Savers”, launched in November, allows native bitcoin to be included in liquidity pools — without the risk of impermanent loss, or the need to whole any of Thorchain’s native token, RUNE.</p>



<p>That should appeal to bitcoiners, Barraford said, “who want to earn BTC on their BTC” but have no interest in RUNE as an asset.</p>



<p>The eventual goal, he said, is DEX aggregation — giving users the ability to conduct multiple cross-chain swaps in a single transaction, would be a huge improvement to user experience.</p>



<h3>Promoting DEX benefits</h3>



<p>The turmoil associated with the downfall of FTX and other centralized parties may help refocus attention on truly decentralized projects.</p>



<p>“Users are now more motivated than ever to capitalize on the benefits of self-custody,” Barraford said in a statement. “The latest market developments emphasize the importance of transparency and self-custody, features that are inherent in decentralized finance (DeFi).”</p>



<p>There are even efforts to bring institutional capital into the ThorChain sphere, with firms such as Nine Realms, whose CEO Gavin McDermott commented that, “beyond the philosophical appeal of self-custody, people will use THORChain because it provides an excellent user experience and feature parity with centralized counterparts.”</p>



<p>The biggest risk to the ThorChain narrative seems to be its complexity. Even sophisticated crypto builders like Solana Labs co-founder Anatoly Yakovenko have been confounded by its economic design.</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">Thor is great, but it carries similar risks as wormhole.  There exists a set of keys not your own that can spend your crypto.</p>&mdash; toly 🇺🇸 (@aeyakovenko) <a href="https://twitter.com/aeyakovenko/status/1603426133348712455?ref_src=twsrc%5Etfw">December 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>This claim — that “it carries similar risks as [Wormhole]” — is objectively false according Smith, who said, “risks do certainly exist, but very different,” with ThorChain.</p>



<p>“Economic security is so important,” Barraford said. Theoretically, a hacker would need to simultaneously compromise the private keys of all of ThorChain’s decentralized active nodes — <a href="https://thorchain.net/nodes" target="_blank" rel="noreferrer noopener">currently 86 of them</a> — to steal the network’s assets. But the validators themselves must escrow a security bond in RUNE such that their own economic incentives <a href="https://twitter.com/ChadThoreau/status/1603433481547096065" target="_blank" rel="noreferrer noopener">prevent malicious action</a>.</p>



<p>Otherwise, it would certainly spell trouble for the ThorChain token, but that’s by design — it also keeps network participants honest. Thus, the token is a critical part of what makes native cross-chain swaps possible.&nbsp;</p>



<p>“The value of the RUNE that I bought would go to zero…We needed an asset that would go to zero, in order to maintain economic security.” Barraford said.</p>



<p><em><strong>Update, Dec. 15, 11:54 p.m. ET</strong> — Yakovenko elaborated in <a href="https://twitter.com/aeyakovenko/status/1603597553009770497" target="_blank" rel="noreferrer noopener">a follow-up tweet</a> that he was referring not to ThorChain&#8217;s economic design, but to the risk of an unnoticed remote code execution (RCE) — a malicious bug — in the node software or hardware.</em></p>



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Native Bitcoin in DeFi — This DEX Wants to Boost Trust

Sam Martin

<div id="highlights-block_60c9fc7f1690b" class="highlights">
        <ul>
                <li>Bitcoin dominance up sharply on today&#8217;s rally</li>
                <li>US Bank launches crypto custody service to satisfy demand</li>
            </ul>
    
</div>



<p>The NASDAQ and Dow Jones closed the day up 1.25% and 0.92% respectively. </p>



<p><a href="https://cms.blockworks.co/banking-giant-launches-custody-services-for-bitcoin/" target="_blank" rel="noreferrer noopener">US Bank</a> will be launching a crypto custody solution powered by NYDIG. It will only offer bitcoin, with the intention to support additional coins over time.</p>



<p>Brazil is set to vote on a bill within the next few days to <a href="https://finance.yahoo.com/news/bitcoin-set-become-legal-payment-154644863.html?guccounter=1&amp;guce_referrer=aHR0cHM6Ly90LmNvL0JBQnlBVm9vYkY_YW1wPTE&amp;guce_referrer_sig=AQAAAIQkO8ZzOBl0aoKUt_nsS8PkNhQvgAetH_aKIpgFeO8PjIkkHSdHhQRJrnpSnq7NWLBdGiBiQm5yAJ6q53KgD-3lxKUM5sM9pqaafhXhPkopI_WhwJyacAXLboQPCauMMhMFi3TvNJAT3mOrXLQkMlipNxkp99NiPznVHFDCoIQm" target="_blank" rel="noreferrer noopener">regulate</a> Bitcoin in a way that encourages its use. </p>



<h3>DeFi/NFTs/Gaming</h3>



<ul><li>The game studio behind Axie infinity, Sky Mavis, received $152 million in a <a href="https://cms.blockworks.co/axie-infinity-developer-scores-152m-in-series-b-funding-nearing-3b-valuation/" target="_blank" rel="noreferrer noopener">series B funding</a> round led by Andreessen Horowitz. <a href="https://coinmarketcap.com/currencies/axie-infinity/" target="_blank" rel="noreferrer noopener">$AXS</a> was last trading at $130, down 6% after its remarkable run the past week. </li><li>ThorChain-based decentralized exchange, ThorSwap, <a href="https://finance.yahoo.com/news/thorswap-raises-3-75m-private-141222643.html" target="_blank" rel="noreferrer noopener">raised</a> $3.75 million in a private token sale. <a href="https://coinmarketcap.com/currencies/thorchain/" target="_blank" rel="noreferrer noopener">$RUNE</a> was last trading around $8.90. </li><li>Nexus Mutual (<a href="https://coinmarketcap.com/currencies/nxm/" target="_blank" rel="noreferrer noopener">$NXM)</a>, an insurance protocol built on top of ethereum, passed <a href="https://twitter.com/NexusMutual/status/1445327767474688007?s=20" target="_blank" rel="noreferrer noopener">proposal 157</a> to allocate nearly $50 million to earn ETH2.0 staking rewards through Lido Finance(<a href="https://coinmarketcap.com/currencies/lido-dao/" target="_blank" rel="noreferrer noopener">$LDO</a>), a liquid staking solution. </li></ul>



<h3>TradFi</h3>



<ul id="block-1209f037-00c3-4876-ad37-a29ab610c717"><li>China turns to <a href="https://www.reuters.com/world/asia-pacific/china-turns-stranded-australian-coal-combat-power-crunch-trade-2021-10-05/" target="_blank" rel="noreferrer noopener">abandoned coal mines</a> in Australia to combat coal shortages.</li><li>US ISM Sep services PMI data came in higher than expected at 61.9 vs. 61.7 in August. Yields on the 10-year treasury rose to <a href="https://www.cnbc.com/quotes/US10Y" target="_blank" rel="noreferrer noopener">1.534%</a> on the news. </li><li>US gas prices locked in their highest close in 12 years due to <a href="https://twitter.com/DeItaone/status/1445464140466704394?s=20" target="_blank" rel="noreferrer noopener">supply concerns</a>. </li></ul>



<h3>Insight</h3>



<p>“This month all eyes are on the SEC’s potential approval of a bitcoin ETF, and this is all the more relevant given two recent developments 一 at a conference last week, Gary Gensler reiterated his preference for a bitcoin futures ETF rather than one based on spot prices, which is relevant given that the proposals up for consideration this month are largely futures-based. Also, on Friday, the CME revealed that it was doubling the limits on initial BTC futures positions. Notably, the day that this new rule will come into effect is October 18th, the same day a decision by the SEC on the ProShares Bitcoin Futures Strategy ETF is due. This could be a coincidence, or it could be the CME planning for a potential surge in futures volumes,&#8221; said Noelle Acheson, Head of Market Insights at Genesis </p>



<h3>Bitcoin and Ethereum</h3>



<p>BTC dominance, or the percentage of the total crypto market capitalization BTC makes up, is up 5.16% over the last month. Historically speaking, rising BTC dominance sets the stage for alt coin rallies in the future. </p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="910" height="661" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png" alt="" class="wp-image-8975" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=910 910w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=354 354w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=359 359w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=301 301w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC.D_2021-10-05_17-44-29.png?w=80 80w" sizes="(max-width: 910px) 100vw, 910px" /><figcaption>Source: Trading View</figcaption></figure></div>



<p>Perpetual funding rates for BTC are mixed across different exchanges, implying that traders are divided on whether to take a short or long position.  </p>



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="718" height="339" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png" alt="" class="wp-image-8978" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=718 718w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-5.56.51-PM.png?w=80 80w" sizes="(max-width: 718px) 100vw, 718px" /><figcaption>Source: https://app.laevitas.ch/dashboard/btc/derivs</figcaption></figure>



<h3>Top 10 coins excluding stablecoins</h3>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="362" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png" alt="" class="wp-image-8979" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-05-at-6.00.16-PM-1024x362.png?w=1374 1374w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: CoinMarketCap</figcaption></figure>



<ul><li>Despite all of the turbulence in traditional financial markets, bitcoin has shown a lot of strength over the past week, last up more than 23%. This is a narrative bitcoin investors would like to see continue. There will be a decision on a futures-backed ETF this month which could be another catalyst for an end of year rally. </li><li>The poor performance of alternative layer-1&#8217;s tells us that money is rotating into the blue chips; BTC and ether. </li></ul>



<h3>Regulatory News</h3>



<ul id="block-d64d70c9-7052-4f1a-8167-3d370fe08354"><li>Minnesota congressman, Tom Emmer, took to<a href="https://twitter.com/RepTomEmmer/status/1445461291145981958?s=20" target="_blank" rel="noreferrer noopener"> Twitter</a> to call out Gary Gensler for attempting to classify some digital assets as securities. He believes that would hurt retail investors more than it would help them. </li><li>Rep. Patrick McHenry (R-NC) introduced the <a href="https://republicans-financialservices.house.gov/news/documentsingle.aspx?DocumentID=408154" target="_blank" rel="noreferrer noopener">Clarity for Digital Tokens Act</a> today. This bill aims to keep innovation in the US and provide legal clarity to those involved with digital assets. </li><li>SEC chairman, Gary Gensler, echoed Jerome Powell&#8217;s comments that the US has no intentions <a href="https://www.bloomberg.com/news/articles/2021-10-05/sec-chief-signals-crypto-ban-like-china-s-won-t-happen-in-u-s" target="_blank" rel="noreferrer noopener">to ban crypto</a>. </li></ul>



<h3>What else we are looking out for&#8230;</h3>



<ul><li>ADP employment numbers on Wednesday</li><li>Initial and continuing jobless claims on Thursday</li><li>Nonfarm payrolls, unemployment rate and average hourly earnings on Friday</li></ul>



<p>That is all for today. Let&#8217;s do this again same time tomorrow. </p>



<hr class="wp-block-separator"/>



<p><strong>Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.</strong></p>



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