Bridging Protocol Forges Partnerships in Slow and Steady Recovery From Exploits
Despite a rough start that would have killed many young companies, THORChain continues to build and raise capital, buoyed by its unique place in the crypto ecosystem.
This week, THORChain, which has a market cap of $487M, announced its integration with the Avalanche blockchain. That brings the total number of Layer 1 chains it partners with to eight — a slow and steady advance for proponents of a world in which liquidity moves seamlessly between blockchains.
Blockchains don’t play nice. Just as an American might struggle to find a store in Paris that will accept his U.S. dollars as payment, so would an Etherean find her ETH useless on Solend, Marinade, or any other Solana-specific protocol.
Founded in 2018, THORChain set out to change that with a protocol that would allow for the transfer of digital assets across blockchains without the need for “bridge” software.
Bridges today are the primary means by which crypto users move from one chain to another. But they only provide a simulacrum of cross-chain compatibility by holding tokens on users’ behalf and issuing derivative tokens of equal value on a destination blockchain.
They have also proven a lucrative target for exploits; as of early August, criminals have stolen about $2B in cryptocurrency from cross-chain bridges in 2022, according to crypto analytics firm Chainalysis.
THORChain wasn’t the only one to try and solve the problem. Investment firm Multicoin Capital said in a research paper in early 2021 that early projects like the Tier Nolan atomic swap, Simple Payment Verification, and Merged Consensus each addressed the issue.
“However, despite their best intentions, none of them ever successfully gained traction for an abundance of reasons (e.g., too slow, free option problem, too expensive, etc),” the report’s authors wrote.
(Today, Chainflip Labs, which has received funding from crypto venture capital firms Framework Ventures, Blockchain Capital, and Pantera Capital, is working on this same issue, but has yet to launch.)
Despite its novel approach, THORChain seemed no safer than the average bridge when, just three months after the beta version went live, it fell victim to three hacks in two months.
Hackers made off with a combined $16M in cryptocurrencies — breadcrumbs, by the standards of crypto exploits, but enough to rattle user confidence in THORChain’s approach.
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One of the hackers left a message in their transaction input data claiming they identified multiple additional “critical” issues and demanding the protocol be disabled until audits are completed. “Do not rush code that controls 9 figures,” they added. (The hacker eventually returned 90% of the funds and kept the remaining 10% as a bounty for having found the vulnerability.)
THORChain was forced to pause its system for two months. But its problems didn’t end there. In November 2021, THORChain botched its launch of THORSwap, a multi-chain decentralized exchange aggregation protocol.
The team says it has learned from its early trouble.
“We’ve been taking it slow and steady when it comes to releasing new features,” a contributor who goes by the pseudonym Familiar Cow, said on a Twitter Spaces Tuesday, “which is why it takes so long to get a new chain integration out.”
And people have continued using THORChain, with the number of daily swaps taking off early this year. After THORChain ended its post-hack freeze last year, total value locked in the chain grew 300%, to more than $400M. But it fell more than 50% after the botched launch of THORSwap.
By early April, however, it had grown 185%, to almost $550M, only to run into the buzzsaw of the bear market. Since then, it has hovered just about $100M.
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And THORChain has continued building. An April report released by research firm Delphi Digital noted that year-to-date liquidity fees accounted for 15% of the total protocol revenue, “surpassing all major layer 1s with respect to unsubsidized fee generation.”
Another THORChain supporter, who goes by Chad Thoreau online, stressed all of the protocol’s issues came before its mainnet launch.
“That was nowhere near the level of maturity in the network that we see today, and there were a lot of intentional caps in place at the time, because this was something that had never been done in all of crypto,” he said on the Twitter Spaces. “This is a problem to solve that’s as old as the second chain in crypto, right?”