What Are THORChain and Rune: The Decentralised Cross-Chain DEX?

THORChain is a Layer-1 blockchain (a base-level network similar to Bitcoin or Ethereum) designed to revolutionise interoperability between different digital ledgers. Functioning as a cross-chain Decentralised Exchange (DEX), it aims to overcome liquidity fragmentation in the crypto market by enabling the exchange of native assets (such as Bitcoin, Ethereum, Base, and others) across different blockchains in a single transaction.

This unique decentralised application (DApp) allows users to swap cryptocurrencies directly from their own digital wallets in a completely permissionless manner—meaning no one needs to ask for authorisation to use it. It operates without the aid of centralised intermediaries, thereby eliminating the need for tedious registrations, KYC (Know Your Customer) identity checks, or the depositing of funds into the custody of a third party.

But what exactly is RUNE? RUNE is the native utility token of THORChain and constitutes the economic and operational heart of the entire ecosystem. Unlike many Web3 tokens that possess a limited or purely speculative role, RUNE is integral to the functional design of THORChain, performing critical duties such as:

Do you wish to discover the secret behind decentralised cross-chain swaps? You are in the right place. This comprehensive guide will take you directly into the core of THORChain, explaining what it is and how THORChain and RUNE work.

How THORChain Works

As we have alluded to, THORChain allows the exchange of native cryptocurrencies across different blockchains (such as BTC and ETH) without using centralised intermediaries or “wrapped” tokens (synthetic versions of assets, like WBTC or WETH, that represent the original coin on a different chain).

Through this DApp, you can therefore swap native Bitcoin for native Ethereum in a single, decentralised, trustless transaction (one that does not require you to trust a human or a company). But how does THORChain actually function under the bonnet?

The secret underpinning this functionality lies in RUNE’s central role as the settlement asset for every swap operation. Through this system, RUNE serves as the universal pivot currency and the foundation of every liquidity pool (the pool of coins required to facilitate a trade pair), thus acting as a connecting bridge between the disparate networks in the market.

When a user executes a swap between two assets (for example, BTC for ETH), the transaction is always executed through an internal sequential process:

This internal mechanism (BTC → RUNE → ETH) enables the protocol to swap all supported assets in unlimited quantities, provided each asset has an active liquidity pool paired with the RUNE token.

In effect, RUNE acts as the “lingua franca” of liquidity: it is the universal translator that enables Bitcoin and Ethereum to “speak” with each other. Despite this double internal step, the end user perceives the transaction as a single, frictionless direct swan.

THORChain’s approach represents a quantum leap in the decentralised finance (DeFi) sector, resolving a significant portion of the fundamental problems associated with exchanging assets across different blockchains.

Traditionally, to exchange currencies across different blockchains, one must resort to centralised platforms that require you to entrust your funds to them, or to cross-chain bridges that often use synthetic versions of tokens (like WBTC).

THORChain eliminates these issues, offering a 100% trustless, highly efficient alternative to solve the inter-chain exchange problem, thereby laying the foundations for a future that is increasingly decentralised.

THORNodes and Consensus

But how does THORChain function from a consensus perspective? The operational fulcrum of THORChain consists of THORNodes—the validator nodes that ensure the network’s vitality and security.

Thanks to a consensus system based on Proof-of-Stake (a mechanism in which validators are chosen based on the tokens they hold rather than their computing power), THORNodes can validate a very high number of blocks, ensuring reliability and operational speed.

This model, unlike the more traditional Proof-of-Work used by Bitcoin, requires significantly lower energy consumption, rendering the infrastructure not only decentralised and efficient but also sustainable.

Each THORNode is composed of four main elements that define its operation:

In this way, THORNodes not only validate and secure the network but also serve as a technical bridge between THORChain and external blockchains, enabling the exchange of native assets across chains.

Tokenomics of RUNE

The economic model of THORChain has been meticulously engineered to incentivise honesty and ensure the protocol’s longevity, placing the RUNE token at the centre of every operation.

Unlike many projects with staggered release plans (vesting) intended for teams or institutional investors, the entire supply of RUNE was already released to the market, thereby guaranteeing maximum transparency from the outset and eliminating the risk of forced devaluation from periodic dumping of large quantities of tokens by insiders.

Suppose this element alone were not enough to qualify the RUNE economic model as oriented towards long-term sustainability. In that case, the introduction of Real Yield generated exclusively by concrete activity and protocol revenue makes it a particularly interesting economic proposition, even for the most demanding investors.

This flow of actual revenue is distributed according to specific criteria for the health and sustainability of the protocol. Currently, the breakdown is as follows:

The TCY token (an acronym for THORChain Yield) was born out of a historic necessity for the protocol to resolve a significant debt problem, estimated at approximately $210 million, that emerged following a crisis in January 2025.

Instead of declaring a net loss for the stakeholders involved, the THORChain community demonstrated its resilience by turning this debt into an opportunity for participation. The mechanism adopted was relatively simple, yet effective: for every dollar of accumulated debt, 1 TCY was created and assigned.

This strategic move not only stabilised the ecosystem at a critical moment but also transformed old problems into an alignment of interests amongst all participants, representing, for all intents and purposes, a successful example of a functioning Decentralised Autonomous Organisation (DAO).

To address the crucial division of the 80% of fees generated by the ecosystem between validator nodes and liquidity providers, THORChain has adopted an original and dynamic mechanism called the Incentive Pendulum.

This system acts as the true economic scales of the network. Its primary objective is not to distribute fees in equal parts, but rather to direct rewards in such a way as to maintain a perfect balance between two key elements:

How does this mechanism work? The system is automatic and adjusts continuously based on network data.

In sum, the Pendulum ensures that the protocol is always in an ideal economic equilibrium, where liquidity at risk is adequately—and sometimes even excessively—covered by the security guaranteed by the Node Bond.

Governance and the Mimir System

Like most processes within this unique DApp, THORChain governance also presents special, profoundly innovative characteristics. The entire philosophy of the protocol, in fact, aims to have the fewest possible rules and human decisions.

This choice, seemingly minimalist, is in reality intentional and crucial for security: by minimising the need for coordination, it prevents validator nodes from acting in concert or colluding, rendering the system extremely difficult to attack or “capture” by a single interest group. In essence, the less there is to decide, the more secure and decentralised the system remains.

The fundamental decisions delegated to governance are limited to three key areas:

This essential structure, according to THORChain’s vision, ensures that the protocol can adapt in an agile and secure manner, maintaining its trustless nature and reducing unnecessary human intervention—and, consequently, the risk of manipulation—to a minimum.

Read the article: Crypto Governance: On-chain and Off-chain 

Conclusions

As we have seen, THORChain is a project that, despite the challenges and errors of the past, has distinguished itself by an exceedingly high level of collaboration and resilience within its community, as clearly demonstrated by the launch of the TCY token.

Beyond this communal strength, its unique architecture, based on RUNE as a pivot asset and on decentralised Vaults, represents a further step forward for the world of DeFi, advancing an ecosystem that is completely interoperable across different blockchains, without the risks associated with the use of centralised bridges or wrapped assets.

All of this is managed by engineered tokenomics that make no compromises on long-term sustainability, perfectly aligning the incentives of all project stakeholders.

Drawing to a conclusion, therefore, we can affirm that THORChain and its RUNE token represent, without a doubt, an evolutionary pillar in the landscape of decentralised finance. Understanding what THORChain and RUNE are and how they work has become essential for anyone wishing to comprehend the future of cross-chain exchange and the advancement towards global, borderless liquidity.