The Essential Guide to THORChain Synthetics
In the previous article we talked about the main benefits of THORChain Synthetics and today we will illustrate how they will look in practice.
THORChain synthetics are derivatives of cryptocurrencies (like Bitcoin or Ethereum) which always keep the same price as the selected coin. They run on THORChain, and they have the same attributes as the THORChain native coin $RUNE.
• It’s a copy of Bitcoin (and other coins) on the THORChain network
• It has low fees and it’s faster than coins on most other networks
• You can always get the deposited assets back
The Main Use Cases
- Cheap & Fast Crypto Trading
- Enhanced Investing
- Self-repaying Loans
- Investment Diversification with Crypto ETFs
- Gaining Interest on $RUNE
- Using THORChain Assets in Cosmos Ecosystem
1. Cheap & Fast Crypto Trading
Using synthetics for trading crypto is cheap and fast. As they run on THORChain, they benefit from the network’s fees and speed. Which means each transaction will cost 0,02 $RUNE and will take ~5 seconds to process.
a) Trader perspective
All traders desire lower fees and faster processing for transactions⏤which currently are problems on Bitcoin and Ethereum blockchains. When $BTC or $ETH are traded natively, it’s expensive and slow. With synthetics this is no more.
- Without synthetics
The swap from $BTC to $ETH might cost $30 and take up to 11 minutes.
• The trader pays fees on BTC, THORChain, and ETH network
• The trader waits for at least 3 block times — BTC (10min), THORChain (5sec), ETH (10–20 sec)
- With synthetics
The swap from $BTC to $ETH would cost ~$0,75 and take around 5 seconds.
• The trader pays only THORChain fees = 3x0,02 $RUNE
• The whole transaction is done in one block, that takes 5 seconds to create
b) Regular Chads
Regular investors will also benefit from the cheap trading, but the main thing for them is simplicity. No need to worry about different chains, their fees, their speed, their wallets, nor anything else. With synthetics it’s all on THORChain.
As a benefit, you will have access to yield generating vaults, and be one of the first users who will vest their funds. Minting synths will be capped and access will depend on how much liquidity is in the THORChain pools.
• Coins from high fees networks will be replaced with their synthetic version for trading
• Lower fees will enable all coins to be traded more, increasing their volume. And higher volume means higher APY, which will attract even more people and liquidity
• Synthetics will be faster and cheaper than most other coins
• You will be using only THORChain network, without worrying about other chains and wallets
2. Enhanced Investing
You own multiple coins and believe in their potential to moon. You either hold them in your wallet with 0% APY or you provide them as liquidity together with other coins and risk impermanent loss.
Synthetic vaults (THORSavings) provide a way to earn up to 20% interest on your coins (at the beginning only 5%). You lock only one type of synthetic inside the vault and it will produce up to 20% yield without a risk of impermanent loss.
Initially, THORSavings will start producing 5% interest and will be adjusted based on network performance.
• Synthetic vaults will enable gaining up to 20% interest on $BTC, $ETH, and other cryptocurrencies
• The locked synthetics are always redeemable
• You lock only one type of synthetic in the vaults, which means there is no impermanent loss compared to liquidity providing which si done in pairs
3. Self-Repaying Loans
Arguably the most important use case of synthetic vaults will be Lending & Borrowing. This financial instrument will enable taking a self-repaying loan.
- You lock synthetics into vaults and they generate yield
- You use the locked synthetics as a collateral to take a loan
- You take the loan which will be paid automatically by the interest the vaults generate from the locked synthetics.
You can get a loan which is paid by the interest the vaults generate from your locked synthetics.
4. Investment Diversification with Crypto ETFs
In traditional finance, ETFs are funds which contain price indices of different stocks. It’s like investing into a basket that contains combinations of stocks, eg. “S&P 500 ETF”. They are fairly safe and also perform well, on average they do 10% per year (simplified).
Synthetics enable creation of crypto ETFs, baskets made of crypto coins. If you want to diversify your portfolio, you can just buy a “Top 10 Coins ETF” and you are set.
• They will generate yield, like a dividend
• They will rebalance themselves to keep the relative quantity of the coins inside the ETF the same.
• Synthetic Crypto ETFs are baskets of different coins that can be used for diversifying crypto investments. There will be countless variations of how the ETFs could be combined, from “Top5 coins”, to “Dog coins only”.
• They will generate interest.
5. Gaining Interest on $RUNE
Synthetic RUNE (iRUNE) is a special kind of synthetic. It generates yield when it is locked in vaults but it also diversifies your investment due to its unique mechanic.
To get synthetic $RUNE, you provide liquidity with $RUNE ONLY. Provided $RUNE gets automatically distributed to all THORChain pools in exchange for iRUNE. Then the iRUNE can be locked in vaults to gain yield that is generated in all pools.
Benefits for the whole ecosystem
Providing liquidity with $RUNE and locking iRUNE will increase the deterministic price of $RUNE due to having more than 3x TVL $RUNE locked in the THORChain ecosystem and not on the market.
• Synthetic RUNE will enable generating yield on top of your $RUNE funds
• It will create a pressure on $RUNE price increase due to less $RUNE being on the market, making it more scarce.
6. Using THORChain Assets in Cosmos Ecosystem
Hypothetically, you could use interest bearing synthetic BTC on Terra network as collateral. This depends on the setup of vaults and also on the other protocols enabling synthetics.
7. Bonus Use Cases
THORChain synthetics are like LEGO bricks, you can build upon them, combine them with other protocols, and create new DeFi products.
Here are some further examples of what could be possible with synthetics:
• Leveraged market
THORChain Synthetics are game-changing instrumet that can simplify trading and make DeFi investing more accessible. It will be also the base for THORFi, and lot of projects will start building on top of them.