THORChain Savers Vaults: A Decentralized Earn Program

As highlighted by the recent FTX collapse, unregulated centralized custodians pose a risk to crypto users and broader crypto markets. Users must trust centralized entities to secure their funds without transparency. Many CeFi market leaders were overleveraged during the recent market downturn and now find themselves insolvent.

The alternative is DeFi, which solves many of the problems that led to CeFi’s downfall. Proof-of-reserves for DeFi protocols are updated on a per-block basis, allowing users to verify the claims made about the solvency of a given protocol. DeFi removes the need for trust.

THORChain is a decentralized exchange built as an application-specific blockchain using the Cosmos SDK. It specializes in cross-chain swaps between native assets across blockchains, bridging value between connected blockchains. It aims to provide a CEX-like experience in an open-source, permissionless manner. On November 12, the protocol launched a decentralized earn program to attract more liquidity onto its network.

Savers: Decentralized Earn Product

THORChain designed its economic and security models around the value of the assets deposited into its liquidity pools, so its intrinsic value and security scale with liquidity.  Historically, mandatory price exposure to RUNE has been the leading deterrence against new LP deposits. To resolve this, THORChain launched Savers Vaults, a yield-generating earn product that distributes a portion of protocol revenue to its depositors. For example, users can deposit native BTC and earn variable yield in native BTC while only having BTC price exposure.

Centralized earn programs are often hidden in a black box and fail to explain how they generate the yield they distribute. In contrast, THORChain Savers simply earn a portion of LP revenue. Traditional THORChain LPs deposit two assets into a liquidity pool and earn revenue from trading fees and network block rewards. Since Savers deposit only one asset into a pool, they effectively become single-sided LPs. Single asset exposure leads to less risk relative to traditional LPs, as Savers only have price exposure to one asset and cannot experience impermanent loss. Therefore, Savers are paid just 50% of the yield accrued by their position, with the remaining yield flowing to the traditional LPs in the pool. While this value is currently set to 50%, it is ultimately controlled by the node operators.

How it Works