Thread by @tannedoaksprout

# The Second Dimension of @THORChain’s Liquidity Black Hole: THORSynths

How synths work, why they matter.

# TLDR how it works:

Deposit $RUNE to mint a #THORSynth, like thorBTC. Pool thorBTC with RUNE and get access to LP rewards from fast&low cost synth swaps.

# TLDR implications:
- captures unused RUNE and filters value back to deterministic price
- becomes a potent DeFi platform in itself
- augments liquidity virtually, and more

Full detail below 👇

# Minting & Redeeming

Synths are created by depositing $RUNE. No external asset like BTC is deposited to mint synths.

This is exciting for early chads who've grown into $RUNE heavyweights.

Allows you to contribute liquidity to the network without selling RUNE or buying other assets.

RUNE is deposited alongside a pool e.g. the BTC pool. This mints $thorBTC, pegged to the price of $thorBTC.

Under the hood, $thorBTC is backed 50% by RUNE and 50% by virtual BTC.

To redeem, you redeposit the minted amount of $thorBTC and receive RUNE back.

# Risk

THORSynths have no liquidation risk. But minters will need to consider an element of price risk.

When you mint a synth, you take on exposure to the pegged synth price, e.g. thorBTC, but you also keep exposure to the price of RUNE.

Example: you deposit 5 RUNE, say $100 worth, to mint $100 of thorBTC. 10 days later BTC price is the same, but RUNE price has gone down 10%. So when you redeem, you receive your 5 RUNE back, but at a discounted price of $90.

Oh no muh runies, you say.

Not to fear – minting synths will be lucrative, as discussed below, and hedging strategies will likely emerge via @THORChainLPU.

# Why mint synths?

When you deposit RUNE to mint a synth you don't receive rewards from the underlying pool. So why would you do it?

You'll be able to deposit your THORSynth alongside RUNE in another pool on THORChain.

THORSynths will likely be high-volume assets in themselves. Why? Cross-chain swaps are desirable but will sustain relatively high network fees – incoming, native and outgoing. THORSynths will only incur the lowest cost fee, native to THORChain itself.

It will also be extremely fast and the UX will be best-in-crypto.

So mints open up an entirely second layer of yield for LPs. #firstclasscitizens.

Again, this is particularly attractive to #runatics who don't want to sell $RUNE or have enough additional assets to match.

Deposit $RUNE to mint, then deposit more $RUNE alongside the THORSynth.

As mentioned earlier, in most market conditions the yield from synth provision should offset any price risk when redeeming $RUNE.

Sidenote: where will you be able to trade synths? @BrokkrFinance

# Downstream Effects

If you're anything like me you're now pumped about the potential of synths. But there's more!

Firstly, this will be a mega-lockup for $RUNE.

Given their attractiveness to those overweight $RUNE synths reduce the issue of the LP mismatch, as outlined here:

mechanaut.substack.com/p/vanir-agents…

Efforts like the one pioneered by @ninerealms_cap will remain monumentally important in bringing in *external* capital. And with synths, the $RUNE side of the mismatch equation will begin to look extremely healthy too.

As more $RUNE is used for minting, and THORSynths are pooled alongside $RUNE, this also factors into deterministic pricing. Synths basically enable $RUNE itself to contribute directly to the valuation, without the requirement for external capital.

For every dollar of $RUNE that's deposited, another dollar of $RUNE is then required to be staked alongside the synth, and another $2 required to be bonded by nodes.

AND $1 of $RUNE has been taken out of circulation – see @SlawTeh's great recent thread on this:

https://twitter.com/SlawTeh/status/1387485083683246083

Also, always bear in mind that $RUNE heavyweights are currently dying for ways to get exposure to LPing so that they can stop missing out on inflation rewards.

A second downstream effect: synths as a potent generic liquidity platform for DeFi applications. Stick a layer of smart contracting on top of #THORSynths, say with @agoric (almost IBC-ready), and you have one of the most attractive platforms for DeFi out there.

@THORChain has slipped the model for DeFi on its head. Ethereum is secure smart contracting first. This has created a nice composable sandbox for DeFi applications. But there isn't a natural underlying layer like cross-asset exchange driving liquidity.

THORChain is *liquidity* first, smart contracting later. This is a first principle that many are sleeping on but one that will likely be resoundingly powerful for decades.

https://twitter.com/tannedoaksprout/status/1385249024312332288

Want more reasons to be bullish?

- Virtual liquidity. Synths should provide a route for cross-chain swaps to have even more liquidity. E.g. BTC -> thorBTC -> thorETH -> ETH. (need to clarify if this makes sense)

- Shorting. Mint a synth and sell it to get short exposure.

- Derivatives. The team have mentioned this and intuitively I think it should be possible to mint derivs in the same way as minting a standard long synth like thorBTC. 10x $BTC anyone? Inverse $LTC?

#THORSynths shift @THORChain's behemoth gravitational pull into hyperdrive. #uponly

A few thanks for this thread: @YashaBlock42 and @randomiser for jumping on a call to explain this stuff so clearly. @nonstopTheo for setting up that call and being a synth gigabrain.

🙏🏽🙏🏽🙏🏽

p.s. I am working on a machine agent which will optimise your @THORChain LP yields while you sleep. DM for more info or follow @mechanaut_xyz for updates!

BTW documentation is fairly thin on THORSynths, so there's a decent chance I've got some stuff wrong! Please jump in and make corrections if so.

Oh and mandatory #RAISETHECAPS