Introduction to THORFinance (THORFi)

What Is THORFi?

THOR.USD/THOR.RUNE Minting and Burning Mechanism

THOR.RUNE (Native RUNE) must be burned to mint the algorithmic stablecoin, THOR.USD and vice versa: THOR.USD must be burned to mint THOR.RUNE. THOR.USD is backed by the liquidity of THOR.RUNE ensuring a 1:1 liquidity exchange for USD at all times.
The anchor price of 1 THOR.USD is determined by the median of the stablecoin pools — USDT, USDC, BUSD, and UST — within THORChain. There is a slip-based fee for minting and redeeming THOR.USD to prevent attack vectors and help to meter demand.
There are no LPs in the THOR.USD/THOR.RUNE pool. It is a virtual pool that exists to determine the mint/burn pricing and to allocate the swap fees that are collected to the THOR.USD Savings Vault.

Borrowing:

  • All loans must be open for a minimum of 100 days to ensure the network produces yield on this LP collateral. Similar to how THORChain’s model for impermanent loss protection (ILP) works, a snapshot is taken at the time you take out your loan, recording your asset deposit value and RUNE deposit value. When the user repays the loan fully, they are subsidized with LP units to the initial deposit amounts of the snapshot.

Collateralization Ratio (CR):

Debt

  • Formula: LP Collateral value / (CR ratio/100) = Debt minted in THOR.USD

No Liquidations for Loans:

  • If your LP collateral value < debt value, economically it doesn’t make sense for a user to repay the debt. This effectively turns the LP collateral into protocol owned liquidity for THORChain until the loan is repaid. This will ensure deep liquidity pools during bear markets or periods of volatility. This LP collateral is yield bearing for the network, collecting block rewards and swap fees from being in the LP.

2 Different LP Collateral Types:

  • LP collateral (such as BTC+RUNE for example) and forfeits the LP yield on this.
  • Single-sided assets such as BTC, locked into THOR.USD Savings to earn more BTC single-sided with no impermanent loss risk. (This single sided collateral will not be in v1 THORFi.)

THORSavings Interest Accounts Vaults

  • Swap fees from minting/burning THOR.USD paid out to USD Savers
  • Network block rewards

2. Blue-Chip Savings:

  • Earning yield from BTC LP: swap fees and block rewards (specifically the yield from the borrowers’ collateral)

As more users enter THORSavings vaults to earn interest on their assets, this burns $RUNE supply.🔥

Incentive Pendulum:

  • Within THORFi, there is a natural equilibrium that balances the APY between LP’s and THORSavings. Note this is not exactly a second incentive pendulum, but similar in some ways. Initially the THORSavings APY will be large as the first Saver will enjoy all the yields from the corresponding Loan Collateral deposited by the Borrowers. As more Savers deposit into the interest-bearing vaults, the THORSavings APY will drop, so some Savers will withdraw to become a LP instead to chase the higher yield.

Net Effect of THORFi on RUNE Supply:

As utilization of THORFi increases, RUNE supply will continue to be burnt causing RUNE to become net deflationary. The THORChain tokenomics design continues to capture the value of quality L1 assets in combination with THORFi’s burning of RUNE’s supply. Ultimate value accrual. ⚡️

Resources:

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LP University

LP University

LP University aims to educate users on how to optimally engage with the @THORChain Network