THORChain (RUNE) -rahakkeen tokenomiikka

The native token of the THORChain network, RUNE, is central to its economic and security model. THORChain is a Layer-1 cross-chain decentralized exchange (DEX) that uses continuous liquidity pools (CLP) and a Proof-of-Bond system to secure native asset swaps across multiple blockchains. The token economics are designed to create a "liquidity black hole" by aligning the incentives of node operators (security) and liquidity providers (liquidity).

Issuance Mechanism

The RUNE token has a capped total supply of 500 million tokens. The issuance mechanism is primarily driven by emission rewards distributed to network participants, which are dynamically adjusted by the Incentive Pendulum algorithm.

RUNE is also subject to minting and burning mechanisms related to its THORFi features, specifically lending:

• Minting/Burning with Lending: When a user opens a debt position (borrows), RUNE is minted and sold into a pool to acquire the debt asset. When the user closes the debt position, the debt asset is returned, swapped for RUNE, and the RUNE is burned.
  • If the value of RUNE increases against the debt asset during the debt period, the process can be slightly inflationary.
  • If the value of RUNE decreases, the process can be slightly deflationary.

Allocation Mechanism

The total supply of 500 million RUNE is allocated across various categories, with the largest portion dedicated to community incentives.

Note: This allocation breakdown is based on data as of June 10, 2022.

Initial allocations controlled by the project team at launch included:

• Service Nodes: approximately 220.45 million RUNE (44.09% of the targeted total supply)
• Operational: 52.00 million RUNE (10.40% of the targeted total supply)
• Community: 50.00 million RUNE (10.00% of the targeted total supply)
• Team/Advisors: 50.00 million RUNE (10.00% of the targeted total supply), which has fully vested as of February 14, 2024.

As of February 14, 2024, significant portions of the circulating supply were held in network modules:

• Bond Module: ~105.30 million RUNE (~21.06% of total supply)
• Reserve Module: ~82.45 million RUNE (~16.49% of total supply)
• Standby Reserve: 60.00 million RUNE (~12.00% of total supply)
• Pool Module: ~30.97 million RUNE (~6.19% of total supply)

Usage and Incentive Mechanism

RUNE serves three primary functions: Liquidity, Security, and Governance. The core incentive mechanism is the Incentive Pendulum, which dynamically adjusts rewards to maintain network security.

1. Security and Bonding (Proof of Bond)

THORChain uses a Proof of Bond system where THORNodes (validators) must bond RUNE to participate in network consensus.

• Bonding Requirement: The network is designed to be secure as long as the RUNE bonded by nodes is two times the value of non-RUNE assets in the liquidity pools. Since every liquidity pool is 50% RUNE, this means that for every $1 of non-RUNE value added, $3 of RUNE is locked ($1 in the pool + $2 bonded).
• Deterministic Price: This security model establishes a baseline RUNE price, known as the deterministic value, which is a minimum of three times the Total Value Locked (TVL) of non-RUNE assets.
• Slashing: Misconduct by a node operator, such as asset theft, results in their bond being slashed by 1.5 times the value of the compromised assets, ensuring the cost of malfeasance exceeds any potential illicit gain.
• Node Requirements: As of February 14, 2024, the minimum bond required for a node was approximately 538,600 RUNE.

2. Liquidity and Yield Generation

RUNE is the base asset for all liquidity pools, requiring a 50:50 ratio with any other asset (e.g., BTC/RUNE).

• Liquidity Providers (LPs) Rewards: LPs earn compensation through:
  • Transaction Fees: Derived from fixed network fees and slip-based fees on swaps.
  • Emission Rewards: Distributed from the network's block reward mechanism.
  • Gas Subsidies: LPs receive RUNE subsidies to compensate for twice the value of gas paid for outgoing transactions.
• Impermanent Loss Protection (ILP): THORChain offers ILP, which ensures LPs at least break even after a minimum period of 100 days. Protection increases linearly over this period.

3. The Incentive Pendulum

The Incentive Pendulum is the core economic algorithm that dynamically allocates system income (transaction fees and RUNE emissions) between node operators and liquidity providers to maintain the optimal security ratio.

• Optimal State: The target ratio for network security and efficiency is 67% of RUNE bonded by nodes and 33% of RUNE pooled for liquidity.
• Reward Adjustment:
  • If the network is Under-bonded (less than 67% bonded), the pendulum shifts more rewards toward node operators to incentivize more RUNE bonding.
  • If the network is Over-bonded (more than 67% bonded), the pendulum shifts more rewards toward liquidity providers to encourage more RUNE to be pooled.

The table below illustrates how rewards are distributed based on the ratio of bonded RUNE to pooled RUNE:

Locking Mechanism and Unlocking Time

Locking Mechanisms

RUNE tokens are locked primarily through two mechanisms:

1. Node Bonding: RUNE is locked as a bond by THORNodes to secure the network. This bond is subject to slashing if the node acts maliciously.
2. Liquidity Provision: RUNE is locked in liquidity pools in a 50:50 ratio with external assets to facilitate cross-chain swaps.

Unlocking Time

Information regarding the specific unlocking schedules for initial token allocations (such as the Fundraiser, Private Investors, or Contributors) was not available, with the exception of the Team/Advisors allocation, which was fully vested as of February 14, 2024.

However, there is historical context regarding investor tokens:

• Seed Investor Vesting: An agreement allowed seed investors to immediately access their previously locked RUNE (approximately 5.2% or 26 million RUNE) in return for bonding them into a THORChain node. The terms required this RUNE to be bonded for 12 months or until mainnet launched, whichever came first.
• Liquidity Provider Withdrawal: Liquidity providers can generally withdraw their positions to native assets at any time, as the system is permissionless for deposits and withdrawals.
• Impermanent Loss Protection: While LPs can withdraw anytime, full Impermanent Loss Protection is only achieved after a minimum lock-up period of 100 days.