Thread by @matrix_qzx

1/ Hey THORChads and crypto fanatics, the draft of #THORFi was recently released by @THORChain $RUNE. I will attempt to sum up THORFi as best as I can and give my thoughts about this exciting initiative.

TLDR will be listed at tweet 34.

2/ to know what is #THORFi, one must understand what is #THORChain (skip to /5 if you already know).

Well, THORChain is a decentralised ecosystem that allows the exchange of native assets across different chains.

3/ When you swap one token from a specific chain to another token from another chain, you receive the native asset and not a wrapped version (such as $wETH for $ETH).

This removes the step of converting the wrapped asset back to the native asset and also ensures no depeg risk.

4/ The main token of #THORChain is $RUNE and in short, it incentivises liquidity in THORChain such that people can swap for native assets.

There’s a lot more to expand on like impermanent loss protection but since the main focus is on #THORFi, I shall be moving on.

5/ The core of the #THORFi economic model would be THOR.USD, which enables the two main features of THORFi:

*Lending
*THORSavings

6/ THOR.USD is an algorithmic stablecoin pegged to USD, which is minted when THOR.RUNE is burnt and vice versa.

This is much like the model of $LUNA and $UST for those who are familiar.

7/ There are also 4 other stablecoin pools on #THORChain namely, $USDT, $USDC, $BUSD and $UST.

The median price of USD is computed from these pools which acts as an anchor price.

8/ *IMPT*: There will be a virtual RUNE-USD pool that guarantees liquidity for THOR.USD, hence allowing people to mint or burn THOR.USD with the existence of the pool.

9/ The pool contains no RUNE or THOR.USD and simply put, it is just there to track the combined RUNE depth of all the stablecoin pools by calculating asset depth or rather, how liquid the asset is by using the anchor price.

10/ This is to give THOR.USD the most liquidity among the other stablecoins which will allow it to have the lowest fees.

Virtual pools of THOR.USD and other assets besides $RUNE can be made in other chains. All of these pools will track depth.

11/ Hence, the swap fees collected from the stablecoin pools are tracked to establish the amount that will be added to the THOR.USD vault and this gives rise to yield for those using THORSavings.

Minting fees of THOR.USD are also paid into the THOR.USD vault.

12/ For lending, #THORChain users can deposit collateral and loan THOR.USD, which are minted upon the user loaning.

Minting debt is the same as minting THOR.USD hence fees for minting debt are also paid to THORSavings.

13/ *IMPT*: Collateral is converted into Liquidity Pool (LP) units hence making these LPs deeper.

By converting collateral to LP units, they can produce yield due to the trading of these assets like how any typical LP would make money.

14/ Trading fees are collected from every interface on THORChain hence producing the yield for these LPs.

For the lending model, the yield is foregone by borrowers thus they do not need to pay any interest.

15/ However, loans must be open for at least 100 days, closing them early will incur a 1% fee per day early.

This is to allow the network to earn sufficient yield from the collateral.

16/ It is also to be noted that when loans are repaid, the users are repaid LP units that are equal in value to what they have deposited in the first place.

However, the remaining LP units are paid out to THORSavings.

17/ Lending is also liquidation-free. As mentioned, the minting of debt produces yield for THORSavings, as the demand for loans goes up, yield of THORSavings increases.

This attracts users towards THORSavings due to increased yields and hence, demand for THOR.USD increases.

18/ To get THOR.USD to deposit in THORSavings, $RUNE has to be burnt.

This results in a net positive burn of RUNE (RUNE is burnt for the minting of debt + RUNE is burnt for the minting of THOR.USD to use THORSavings).

19/ This allows lending to always be profitable for THORChain as $RUNE supply decreases with each loan.

20/ For THORSavings, users can choose to have their savings in THOR.USD or blue-chip assets such as $BTC, $ETH or any other base assets on other chains.

As already stated, fees from the minting/burning of THOR.USD will contribute to the yield for THOR.USD savings.

21/ Whereas for blue-chips, yield is contributed through the fees collected from blue-chip LPs as well as blue-chip collateral which end up being used as LP units (e.g. $BTC collateral paying BTC savers).

22/ Do take note that there will be a 14-day lock on deposits to prevent mercenary capital (the injection of money by opportunistic investors to gain short-term profits from the yields).

23/ To sum up, LPs in #THORChain and the minting/burning of THOR.USD power the yields for the collateral and THORSavings.

The main risks I see for this model are:

*The depeg of THOR.USD

*A great fall in the price of RUNE (correlated with the first point)

*Low borrowing demand

24/ In the draft, it is stated that the peg of THOR.USD is protected by the liquidity of $RUNE.

Therefore, if there were to be a great fall in the price of RUNE. THOR.USD will be used to buy up more RUNE at the lower price so that the deep liquidity of RUNE can be maintained.

Tweet 25-36 continues in this thread below:

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https://twitter.com/matrix_qzx/status/1506652494746640386