With mainnet in its sight, THORChain releases a draft design of the next feature in its roadmap - THORFi .

THORFi Economic Design

The design of THORFi:

1. THOR.USD - algorithmic stablecoin pegged to USD.
2. Lending - borrow USD from blue-chip LP positions with 0% interest, no liquidations, with as low as 100% collateralization ratio
3. THORSavings - an interest-bearing account with single asset exposure.

A quick summary is below:

THOR.USD

THOR.RUNE is burnt to mint THOR.USD, and THOR.USD is burned to redeem THOR.RUNE. An in-built liquidity-sensitive fee is paid on mint/redeem which meters demand, prevents attacks and foregoes any need for caps or timelocks. Since perfect redemption is possible in small quantities ($1.00 for 1.00 USD), USD will always be exactly $1.00.

RUNE supply is responsive in this design, and RUNE liquidity in L1 liquidity pools is accountable for any price reflexivity of RUNE.

Lending

THORChain users can deposit collateral and mint debt as THOR.USD. Collateral is always LP units of the primary asset of any chain (ie ETH but not ERC20s). Since the collateral is LP units, lending, by nature, makes the pools deeper and drives the $RUNE price up.

0% Interest

Borrowers forego the yield from their collateral and thus pay 0% interest. To ensure the network does produce yield, all loans must remain open for 100 days at minimum. Loans can be closed sooner for a 1% fee per day early. At the time the loan is open the network takes a snapshot of the asset depositValue and rune depositValue of the collateral, (similar to how impermanent loss protection works). When the user repays their loan in full, they are given LP units that equal this rune/asset deposit value back to them. Any remainder the network keeps, which is used to pay yield for THORSavings.

THOR Savings (Interest Accounts)

There are two types of Saver Vaults. USD and BlueChip; with slight nuances. The mechanism for participation is simply locking an eligible asset in its vault; the yield claimed is pro-rata. A 14-day adjustable lock on deposits is added to prevent attracting mercenary capital.

USD Savings

1. Swap fees from minting/burning USD (and all BlueChips, below)
2. Network block rewards may be paid into the vault as a bootstrapping yield mechanism. Mimir can control the frequency (1 in every 10 blocks).

Mint/redeem fees are expected to be high even though the THOR.USD pool is not arb'ed. This is because commonly arb bots use a stable coin as their settlement asset to start and end in. This is the reason why the BUSD pool has such a high yield. But once this pool becomes available, it will offer arbs faster and cheaper fees (even more so than synthetic stables). In the event that this assumption proves to be incorrect, the vault can be subsidized by block rewards to drive up demand and achieve produce market fit. Assuming vault depth is $100m, mint-redeem fees are 2-5% APY, block rewards are 7% 100m / 42000r * $5 * 365days * 10% = 7.6% - total yield around 10-12% APY.

Blue Chip Savings

Blue Chip assets (base assets on all chains) are also eligible for the exact same mechanism as USD.

1. Price oracle from 1 or more L1 pools
2. Mint/Redeem using RUNE
3. Virtual depths with amplification and liquidity-sensitive fees

Blue Chip Savers earn all the yield captured from loan collateral; BTC collateral is paying BTC savers, ETH collateral is paying ETH savers. For each pool, the outstanding deposit values of loans can be computed. The locked LP unit value is compared to this and will always be positive, since pool LUVI always goes up. Each time THORSavings are interacted with, the excess LUVI is skimmed and paid to the savers-vault to be redeemed.

If the Pool is earning 20% APY, and 50% of the pool is lender collateral, then the savings vault should have a minimum depth of 50% the Pool, with savers earning a minimum of 20% APY. Since the friction to participate in savings is much lower than LP, potentially the savings depth will be higher than Lender depth.