The Stablecoin That Survived a 95% Crash: Zephyr Comes to THORChain

2026-06-06 — 12 min read

Podcast

THORChain x Zephyr Protocol Podcast #206 ft. Goose, Dr. Future, KentonC137 & Patriotsounds | June 6, 2026 | Watch the full episode on YouTube

By Raynalytics

TL;DR

The team behind Zephyr Protocol joined the podcast to introduce Zephyr: a proof-of-work private layer 1, forked from Monero, that runs a fully decentralized, over-collateralized stablecoin with native yield.
Zephyr has four assets: $ZEPH (the collateral), $ZSD (the dollar-pegged stablecoin), $ZYS (the yield share), and $ZRS (the reserve share). Every $ZSD is backed by at least 400% $ZEPH in the reserve.
$ZSD held its peg through a 95% collapse in $ZEPH during 2024, when the reserve ratio bottomed near 250%. The yield engine has returned over 90% since October 2024, with a trailing 12-month effective APY north of 21%.
An Ethereum bridge is in the works, bringing wrapped Zephyr assets to Uniswap. Because $ZYS is an ERC20 on the Ethereum side, Kenton noted it could be added to THORChain almost immediately once pools are seeded.
The conversation turned to a native $ZEPH chain client on THORChain after Monero goes live, and to a live debate on THORChain's shift toward a protocol-owned liquidity model.
$XMR support is the near-term unlock: Goose framed a native $ZEPH integration as a natural next step once Monero ships, given Zephyr is built on the Monero codebase.

Introduction

A stablecoin that held its dollar peg through a 95% collapse in its own collateral, while paying double-digit yield the entire time, is the kind of claim that usually does not survive contact with the data. On Podcast #206, the team behind Zephyr Protocol made exactly that case, and brought the receipts.

Zephyr is a proof-of-work private layer 1, forked from Monero, that runs a fully decentralized and over-collateralized stablecoin with native yield. Walking the community through it were Goose, Zephyr's marketing lead, and Dr. Future, a community member who builds tools and explainers for the ecosystem. The conversation was hosted by Kenton and Denny, with Chad absent as THORChain works through its network restart.

What follows is a tour of how Zephyr actually works: its four-asset model and the over-collateralization that holds the peg, the yield engine and the flywheel that drives adoption, the Ethereum bridge bringing wrapped assets to Uniswap, and the live discussion of what it would take to get Zephyr, and its privacy, onto THORChain. Along the way, Kenton lays out a major shift the network is weighing for how it sources liquidity.

1. What Zephyr Is: A Private Stablecoin on a Monero Fork

The clearest way to understand Zephyr is to start with the problem it set out to solve. Stablecoins are, by settlement volume, crypto's single biggest use case. But the market is dominated by $USDT and $USDC, both of which carry a freeze function and a blacklist at the contract level.

Zephyr's answer is a proof-of-work private layer 1 built on a fork of Monero. It inherits Monero's privacy stack (ring signatures, stealth addresses, bulletproofs) and adds a native dollar stablecoin, a yield system, and a reserve mechanism. Goose put the ethos plainly: privacy is not about hiding something, it is simply how money is supposed to work, the same way cash is private and a bank balance is not broadcast to the world. The fact that crypto made surveillance the default, he argued, is the bug, not a feature.

Denny, who has educated on THORChain for going on six years, was firmly on board with the premise, pointing to the real-world danger of mandatory KYC and the wrench attacks that have followed people whose holdings became public.

"Privacy is necessary for society to function. KYC again guys, it is dangerous. People are getting hurt." (Denny)

2. The Four Assets and How the Peg Holds

Most stablecoin protocols have two tokens: the collateral and the stablecoin. Zephyr has four, and each solves its own problem. $ZEPH is the base collateral, $ZSD is the dollar-pegged stablecoin, $ZYS is the yield-bearing share, and $ZRS is the reserve share, or the equity layer.

$ZEPH is mined with the RandomX algorithm, the same one Monero uses, so anyone with a CPU can mine it. It is hard-capped at 18.4 million coins plus a tail emission to keep miners paid. Crucially, you cannot mint infinite collateral, which is the structural difference from algorithmic designs like Luna. Goose walked through that distinction directly: where Luna could mint unlimited collateral to defend its peg and ended in a death spiral, Zephyr requires a minimum of 400% backing to mint a new $ZSD.

"Where Luna got weaker as more people entered, Zephyr actually gets stronger because of the heavy over-collateralization rules." (Goose)

Dr. Future offered a bank-account analogy to make the mechanics concrete: the protocol holds the collateral in a permissionless, on-chain reserve, monitors the collateral ratio every block, and refuses to mint new stable dollars below 400%. The peg has been stress-tested for real. When $ZEPH fell 95% over a few weeks in 2024, the reserve ratio bottomed around 250% and $ZSD held its peg the entire way down.

The $ZRS reserve share is the most complex piece, and Goose used a house-and-mortgage analogy to explain it. The pile of $ZEPH in the reserve is the house, the circulating $ZSD is the fixed mortgage, and $ZRS is the equity that captures everything above the stablecoin liabilities, while also taking the downside first. $ZRS holders also receive 30% of every block reward plus protocol fees. The effect is leverage without liquidations or perps: $ZRS rises faster than $ZEPH on the way up and falls faster on the way down.

3. The Yield Engine and the Flywheel

The asset that drives adoption is $ZYS. Stake $ZSD and you receive $ZYS, a non-rebasing yield token similar to wrapped staked $ETH: you do not get more units over time, but each one becomes worth more, measured in the stablecoin. Every block, 5% of the mining reward is converted to $ZSD and deposited into a separate yield reserve, which grinds the value of $ZYS upward block by block.

The numbers Goose shared are notable. Since inception in October 2024, the rate has climbed from 1.0 to roughly 1.91, an all-time return north of 90%. The trailing 12-month effective APY is above 21%, and even at today's 7.5%, the lowest it has ever been because the $ZEPH price is depressed, it still roughly doubles leading competitors like Ethena, Sky, and Ondo. There are no lock-up periods, so users can move between $ZSD and $ZYS at any time.

"Even in our worst stretch, we're still outperforming the top yield stablecoin competitors." (Goose)

What makes the design self-reinforcing is that every step toward yield strengthens the protocol. To earn yield you need $ZYS, which requires $ZSD, which requires locking $ZEPH into the reserve, which requires buying $ZEPH off the open market in the first place. Every yield-seeker becomes an inadvertent buyer of $ZEPH, and that supply is locked away rather than sold back. Each block, the reward splits 65% to miners, 30% to the reserve and $ZRS holders, and 5% into fresh $ZSD for the yield pool. As demand grows, the reserve becomes more over-collateralized, not less.

Dr. Future highlighted one more feature that surprised the hosts: taking profit on $ZEPH inside the wallet has no price impact. Converting $ZEPH to $ZSD locks the collateral into the reserve instead of hitting an order book, so de-risking into a stable actually strengthens the flywheel rather than creating sell pressure.

4. The Ethereum Bridge and a Fast Path to THORChain

Zephyr's developers have been building an EVM bridge to Ethereum since the middle of last year, well before THORChain announced Monero support. The goal is accessibility: today, earning the yield means buying $ZEPH on an exchange, setting up a native wallet, minting $ZSD, and staking it for $ZYS. The bridge turns that into roughly one-click access on Uniswap, where someone can swap $USDT or $USDC directly for wrapped $ZYS.

The bridge also solves a visibility problem. As a private layer 1, Zephyr is effectively invisible to dashboards, because you cannot display a private chain's TVL or yield the way you can with transparent ERC20s. Wrapped versions on Ethereum mean the yield metrics finally surface on platforms like DeFi Llama, which Goose described as acting like a big billboard for the protocol.

This is where THORChain entered the picture in a concrete way. Kenton pointed out that if the wrapped asset is an ERC20, THORChain already supports Ethereum and runs a router, so adding it could be straightforward once liquidity pools are seeded. He noted the minimum to start a pool is 10,000 $RUNE, roughly a few thousand dollars at current prices, paired equally with the asset.

"That's the power of THORChain. We don't care. We just have everything." (Kenton)

Goose acknowledged the irony of spending an hour on an Ethereum bridge during a THORChain podcast, then made the larger point: tapping $ETH's liquidity is one thing, while getting onto THORChain opens access to Bitcoin liquidity and the full depth of crypto. Native $ZSD moving over THORChain rails would also retain its privacy in a way the EVM bridge cannot, which matters for a protocol whose entire identity is privacy by default.

5. The Protocol-Owned Liquidity Debate

The most consequential THORChain news in the episode came when Kenton walked through a shift the network is actively weighing. For the last six months, swap fees have gone only to nodes and bond providers, with zero fees going to the pools. Traditional liquidity providers, he explained, have not produced sticky liquidity, and sending yield to the pools has not meaningfully grown them.

The alternative on the table is a protocol-owned liquidity model. Instead of routing fees to third-party LPs to attract outside capital, the protocol itself becomes the liquidity provider, and that liquidity never sells and stays in place. Under this model, a new layer 1 listing on THORChain would seed a pool (Kenton cited roughly 50,000 to 100,000 dollars to function properly) and then the protocol would direct its own fee revenue into the pools that generate the most volume.

"We just become our own liquidity provider and then we don't have to worry about liquidity pulling out during bear markets." (Kenton)

Kenton was direct that this changes the pitch to new chains: providing liquidity on THORChain would become a cost rather than a fee-earning position, though arguably a much lower one than centralized exchanges demand, and without anyone automatically dumping on the token. Dr. Future suggested $ZYS could be especially well-suited here, since it lacks the impermanent-loss profile of a volatile asset like $ZEPH and any price deviation on THORChain would simply be arbitraged back, generating volume and fees in the process.

6. Running the Chain and What It Costs Nodes

Because this episode is watched by THORChain node operators, the hosts pressed on the practical cost of supporting a $ZEPH chain client. Every THORChain node runs a full node of each supported chain rather than relying on shared RPC endpoints, a design choice that keeps the network from depending on a single provider as an attack vector.

The good news for nodes is that $ZEPH is a lightweight UTXO chain. Denny estimated running it would cost roughly a quarter of what Monero requires, since it is a younger Monero fork with a block every two minutes and a daemon footprint around 12 gigabytes. That stands in sharp contrast to Solana, which the hosts repeatedly described as a beast to run and the reason THORChain recently relaxed its full-node rule to allow RPC endpoints for that chain specifically.

"Real layer 1, it's a simple sentence. It is the most unbelievably excruciating difficult thing that's ever been attempted." (Denny)

Denny was also clear about what Zephyr would need to bring: developer effort on the chain client itself. He pointed to Quai Network as the model, a project that jumped on the chain client work and pushed it quickly. With Monero shipping first and Zephyr sharing much of the Monero codebase, a chunk of that work may carry over, potentially easing the path.

7. Payments, Finality, and the Real-World On-Ramp

Kenton kept pressing on the question that matters most for a stablecoin: where does outside money come from, and how does $ZSD get used in the real world. Goose acknowledged that getting payment processors and merchants to accept $ZSD is the next hurdle, alongside community-built merchant directories similar to XMR Bazaar. For now, the case for adoption is sustainable high yield on a private stablecoin.

On speed, Dr. Future said $ZSD transfers show up in a wallet very fast, often before the first block confirms, with full settlement under a minute in his experience. Fees are negligible and are deducted from whichever asset you send, so there is no need to hold a separate gas token. The hosts seized on that last point, since needing $ETH to move $USDT is a genuine barrier, and Denny's fix was simple: you do not go to a centralized exchange for gas, you go to THORChain.

Denny illustrated the stakes for payments with a now-running gag from the show, asking everyone to sit in silence and make eye contact for fifteen seconds to feel how unbearable even a short delay is at checkout. His takeaway was simple: when you go to pay for something, the quicker it is, the better.

What to Watch

$XMR going live on THORChain via the FROST TSS, which Denny credited to Luke Parker. Monero shipping first is the prerequisite for serious discussion of a native $ZEPH integration.
Zephyr's Ethereum bridge and audit: the bridge brings wrapped $ZSD and $ZYS to Uniswap, with a third-party security audit underway before launch.
THORChain's liquidity model decision, expected to come to a head in the next couple of weeks, between the traditional fee-to-LP approach and a protocol-owned liquidity model.
A possible $ZEPH chain client, with the Zephyr dev team set to link up with Chad and Boone, and developer bandwidth being the main gating factor.
Next week's guest: Nano-GPT, an AI aggregator the team met in Las Vegas.