Risks of the THORChain Project

THORChain

2019-12-13 — 4 min read

Overview

THORChain is not without risks and it is important everyone understands them. They are covered below.

Technical

The following are the possible technical risks:

Replicated State Machine Implementation

low-risk

THORChain uses the well-built replicated state machine known as Cosmos, built with Tendermint consensus. There are currently four engineers on the team working on this aspect, three of which have more than sufficient experience currently with the stack.

Threshold-Signature-Scheme Implementation

medium-risk

THORChain uses the recently-audited BinanceChain go-TSS library. There is one cryptography subject-matter-expert on the team who is ensuring the implementation is safe and resilient. The team believe the initial design goals of the project with TSS can be met, however there still exists a body of work to ensure that it is highly-redundant in an asynchronous environment.

Bifröst Implementation

medium-risk

The manner by which THORChain connects to other chains is well-known at this point. Connecting to BinanceChain is trivial because of instant-finality properties. Connections to PoW chains is under-going, but largely not problematic. There may be edge cases in PoW chains that have not yet been adequately reasoned about.

Scaling

medium-risk

THORChain scales by sharding its liquidity and using asynchronous delegation. Whilst the manner at which it can do this is well-known to the team, it still needs to be adequately tested and validated. Scaling beyond the first 33 nodes up to 99 and more will require this aspect to be thoroughly tested. There may be a case that the protocol stagnates in the 20–30 Node count whilst additional optimisations are built.

Economics

Economic Security

medium-risk

THORChain makes assumptions about the economic security of the network. These break down if there is active collusion or the presence of cartels. The team go to great lengths to ensure the asset distribution is wide and fair, being a focal part of the project.

Economic Incentives

low-risk

THORChain uses economic incentives to pay Nodes and Liquidity Providers. Designing economic incentives becomes a “measure with micrometer, cut with axe” approach, since a lot of entropy is added in a free market that can’t be modelled. The essence of the design is to push the system always back to its “happy centre”.

Liquidity Model

low-risk

The team have been studying bonded token algorithms for almost 18 months. Although the CLP model promises some novel aspects which fixes the issues plagued by the XYK model, the exact manner by which fee-collection takes place is not the focal part of THORChain. Indeed fee collection is amplified in the first 10 years due to generous Pool Rewards. It wouldn’t be difficult to change the liquidity model at a later time if Node Operators supported it.

Team & Treasury

Founder Risk

low-risk

THORChain has deliberately removed all founders/advisors and notion of “core team”. Projects that have central personalities can never properly decentralise, and the personalities end up becoming a liability to the project. In future, Node Operators will fund the satellite development teams. The community is being encouraged to actively champion the project instead.

Team Risk

low-risk

The team are highly incentivised to ship the protocol. Cross-chain liquidity is the holy grail of the space, and the end is tantilising close.

Treasury

low-risk

The treasury is sufficient to deliver a protocol that supports BinanceChain, Ethereum and Bitcoin connections (estimated less than 18 months of work). There is very low risk that the current milestones set cannot be funded.

Market & Execution

Competition

medium-risk

The team firmly believe that the only way to achieve cross-chain liquidity is via a bonded network, powered by a replicated state machine, with 1-way state pegs and a chain-agnostic threshold-signature-scheme to manage outgoing transactions. There are very few teams in the world capable of building this network, especially since the technology to build it is so new. THORChain team are currently leading the effort for a winner-take-most victory, but a slip-up or delayed release could impact this.

Market

low-risk

The team believe that THORChain will strike product-market-fit immediately, due to incentives and very high engagement rates so far, with over 80% engaged in RUNEVault.

Execution

low-risk

The team have full control. No one can leverage them, nobody can slow them down. It is up to them to execute and ship the protocol.

Project Efforts

The team understand the risks and unique aspects of the THORChain project. In return for obfuscating some parts of the project (devs) the following is served in abundance: