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I spent 2019 dollar cost averaging into BTC, ETH, and LINK. I knew the digital asset space would inevitably be reanimated and I wanted to be well positioned for its come back. I bought BTC because I believed at the very least it would be the monetary base for the entire digital economy. I bought ETH because I thought it would be the foundation layer of the new financial system. In the context of DeFi, this means core financial primitives would be built on top of it. Lastly, I bought LINK because I saw it as the missing piece required to bridge on-chain DAPPS with the real word. In terms of performance, I expected ETH to out perform BTC and I hoped that LINK would mirror ETH’s performance in 2017. However, after digging deeper into DeFi my outlook morphed. I still believe LINK will continue to perform well, however there’s another token that is more likely to replicate ETH’s parabolic performance in 2017. In this short write up I’ll back up my outlandish claim.
In 2017, ETH went from $1 to $1400 because of initial coin offerings (ICOs). People were making wife-changing gains in a very short period of time. To participate in these lucrative opportunities, investors were forced to buy ETH. ETH didn’t go parabolic because it was widely adopted or used. Instead, it went up because investors were forced to buy it for ICOs. In this regard, ETH basically was an ICO ETF. In this cycle the token distribution model is different. Rather than ICOs, tokens are distributed through liquidity mining. Additionally, tokens are immediately tradeable on decentralized exchanges like Uniswap. Many new projects incentivize liquidity provision by disseminating free token to liquidity providers. In most cases, the base pair is ETH. In summation, in 2017 investors bought ETH for ICOs and in this cycle they’re buying ETH for liquidity mining.
Liquidity mining is not exclusive to ETH, projects on other chains are likely to offer similar incentives to bootstrap liquidity/activity. The problem is that they don’t have a common venue for pooling liquidity. Instead, liquidity is siloed on different chains. This is where Thorchain hopes to be impactful. They are creating the first chain agnostic automated market maker. This protocol could become the premier spot for new projects to establish deep pools. By creating a pool on Thorchain, they will able to source liquidity from multiple chains. Since all the pools on Thorchain use RUNE as the base pair, all potential liquidity providers will be required to purchase RUNE tokens. In other words, just as investors were forced to buy ETH for ICOs in 2017, they’ll be forced to buy RUNE for liquidity mining in this cycle.
Unlike ETH, RUNE’s price is designed to be deterministic. For every $1 worth of non-RUNE assets locked in the pool, $3 worth of RUNE has to be locked in the network. One dollar worth of RUNE in the pools (as the base pair) and $2 bonded by node operators. As liquidity pours into the pools on Thorchain, in theory the value of the RUNE token should rise in tandem. To simply put it, RUNE price = total value locked x 3. Since we’re undeniably in a bull market I expect the price of RUNE to trade multiples above its deterministic value. Initially, Thorchain will support bridges to the following chains: LTC, BTC, ETH, and BCH. Later this year they may also add ADA, DOT, SOL, XHV, COSMOS and many others. Assuming my bullish scenario plays out, Thorchain will be the epicenter of all DeFi related activity.
This write up doesn’t encapsulate my entire bullish thesis. Here are a few other reasons to remain optimistic:
Lower fees for trades
Impermanent loss protection
Synthetics collateralized with RUNE
Collateralizing LP positions for loans
Free marketing with the addition of every new bridge
Strong and supportive community
Juicy yields for LPs
A liquidity bridge, potentially for all chains
CeFi platforms like SHAPESHIFT ready to integrate Thorchain
If you’re interested in learning more about the Thorchain protocol check out a few of my recent videos. They’re time stamped so feel free to jump around.
Introduction [1:28]
Tokenomics [6:45]
Road Map [12:20]
Short Comings [13:55]
My Thoughts [16:09]
BTC & ETH Bridges [2:04]
Advanced Financial Products [5:14]
Intro to LP Tokens [00:58?]
Uniswap Mania [1:52?]
Bepswap Lp tokens [4:56?]
Liquidity Magnet [8:55?]
Saving LPs From IL [2:07?]
Main Growth Driver [3:22?]
Wallet Integrations [6:49?]
