FLASH NOTE: Flipping THORChain’s Kill Switch to Upgrade RUNE

Why IOU RUNE Exists

Non-native BEP2 (on Binance Chain) and ERC20 (on Ethereum) tokens are considered “IOU” RUNE. IOU RUNE has no direct function within the THORChain network but is currently exchangeable 1:1 for native RUNE.  IOU RUNE was released 18 months before the launch of the THORChain network in order to diversify the initial distribution of the native tokens.

THORChain is an application-specific blockchain secured by 100+ anonymous node operators. As such, no single entity should have influence over which nodes are in the active validator set. IOU RUNE allowed market participants to acquire enough RUNE to become a validator upon the network’s launch. If it did not exist, the development team, THORChain treasury, or early investors could have influenced the initial validator set.

Even without the Kill Switch, investors are encouraged to upgrade to native RUNE because of the vulnerabilities with IOU RUNE. For example, BEP2 RUNE is not automatically burnt when exchanged for native RUNE; it is sent to a treasury address and manually burnt. A malicious actor could theoretically steal the treasury private keys and infinitely mint native RUNE. Additionally, ERC20 RUNE uses a problematic transferTo() function, exposing token holders to phishing attacks. To exploit this, attackers can airdrop malicious tokens to ERC20 RUNE token holders. When users approve the sale of the malicious tokens, they are also giving the attacker access to all ERC20 RUNE held in the wallet.

Circulating IOU RUNE accounts for 20.7% of the total RUNE supply, with 19.4% on Binance Chain and 1.3% on Ethereum. With THORChain nearing mainnet launch, RUNE does not need to exist on other blockchains.

Kill Switch

The Kill Switch will forcefully depreciate IOU RUNE by linearly decreasing its exchange rate with native RUNE from 1:1 to 1:0 over 12 months. Six months after Kill Switch activation, 10.0 ERC20 RUNE tokens will be redeemable for just 5.0 native RUNE. Twelve months after activation, the code permitting IOU exchange will be removed, rendering IOU RUNE useless.