Economic Model

THORChain's economic model is designed to maintain network security, ensure liquidity efficiency, and sustain long-term protocol viability. It does this through a combination of the Incentive Pendulum, an emission schedule from the Reserve, and defined inflows and outflows.

Incentive Pendulum

The Incentive Pendulum automatically adjusts reward distribution between node operators and liquidity providers to maintain the correct balance between security and liquidity.

The system monitors the ratio of bonded RUNE (from node operators) to pooled assets:

  • If there is too much liquidity relative to bonded security, the network is unsafe, so rewards shift toward nodes.
  • If there is too much bonded capital relative to liquidity, the network is inefficient, so rewards shift toward liquidity providers.

This creates a self-balancing system that maintains a target of 2:1 bond-to-stake ratio, which is central to THORChain's security model. Detailed documentation on the Incentive Pendulum can be found in Incentive Pendulum.

Emission Schedule

Token Distribution

There are a maximum of 500M RUNE. All supply was created at genesis and distributed as follows:

  • 5% (SEED) and 16% (IDO) sold for capital to start the network and give it value.
  • 10% allocated to early developers who worked since 2018.
  • 24% given to users who participated in network bootstrapping.
  • 44% placed in the Protocol Reserve to pay out to nodes and LPs for the next 10+ years.

Success

All vesting has been completed.

The Reserve module and other modules can be viewed here.

Block Rewards

Block rewards are calculated as:

blockReward = (reserve / emissionCurve) / blocksPerYear

Info

The emission curve is currently set to 100,000, meaning block rewards are minimal, approx. 740 RUNE per year.

Reserve Maximum Cap

The ReserveMaxCap is a mechanism that allows increased emissions when the Reserve balance becomes too large. When enabled, it automatically overrides the EmissionCurve mimir value to the default constants value of 6.

How it Works:

  1. If ReserveMaxCap > 0 (enabled)
  2. And totalReserve > ReserveMaxCap
  3. Then EmissionCurve is automatically set to 6 (default)

Purpose:

Once the reserve reaches the target balance, any additional income to the reserve is emitted to nodes and pools as additional yield instead of accumulating excess in reserve.

Configuration:

  • Mimir Setting: ReserveMaxCap
  • Default: 0 (disabled)
  • Units: 1e8 notation (e.g., 20000000000000000 = 200,000,000 RUNE)

Example Scenario:

ReserveMaxCap = 20000000000000000  (200M RUNE cap)
totalReserve = 25000000000000000   (250M RUNE actual)
emissionCurve = 100,000            (mimir value)

Because totalReserve > ReserveMaxCap:
  → emissionCurve is overridden to 6 (constants)
  → Emissions are increased to prevent the Reserve retaining too much RUNE

When the totalReserve falls below the ReserveMaxCap, the mimir override is removed and the mimir emissionCurve is used. At no stage is the mimir value changed.

See Constants and Mimirs for current network settings.

Reserve Inflows and Outflows

Reserve Inflows

  1. Native Transaction Fee: A 0.02 RUNE fee applies to transactions made on the THORChain blockchain (RUNE, Synthetic Assets, Secure Assets). This is separate from outbound fees, which only apply to external-chain transactions.
  2. Outbound Fees: Fees collected from all outbound transactions, varying by asset type:
    • Native Outbound Transaction Fee: Fixed 0.02 RUNE on RUNE and native asset transactions.
    • Layer 1 Outbound Fee: For external-chain assets (e.g., BTC, ETH), this bundles the external gas cost, gas pool swap fee, and THORChain network fee into a single charge. Fee levels are determined by the chain's gas rate and dynamic_multiplier_basis_points.
  3. Withdrawal of Reserve POL: Occurs when RUNEPool additions replace Reserve-backed POL or when POL requirements are reduced.
  4. Slashing Income: From node bond slashes, particularly for keygen failures or other operational breaches.
  5. Staged Pool Costs: Deductions from the staged pool to cover churn-related costs. Controlled by the Mimir variable StagedPoolCost.

Reserve Outflows

  1. Gas Reimbursement:
    • Churn Gas Reimbursements: Covers migration gas costs during vault churns. Reimbursed by the Reserve and factored into outbound fee adjustments.
    • Non-Churn Gas Reimbursements: Reimburses gas for external-chain outbound transactions. Over time, total outbound fees collected for a given coin are designed to equal total reimbursements for that coin.
  2. Reserve Adding to POL: If undeployed RUNE in RUNEPool is insufficient to cover a withdrawal, the Reserve contributes. If RUNEPool has enough, no Reserve contribution is needed.
  3. Block Rewards: Paid to node operators and liquidity providers.

Additional Points

  • Gas reimbursements and outbound fees generally balance each other over time, ensured by the dynamic Outbound Fee Multiplier (OFM).
  • POL funding prioritises RUNEPool, with the Reserve acting only as fallback.
  • System income (swap fees) is distributed immediately to developers, burns, pools, and nodes, rather than being retained by the Reserve.

Monitoring

You can monitor THORChain's economic state through: