In any community, there will be debate over various topics. We are no stranger to this. In decentralized communities - especially when there is money involved - those debates will grow into something more.
Debates over how to progress in the future, changes and other aspects of the collective are common and can be expected. It's not a question of whether debates are okay or should even happen. It's a question of the quality of the debates.
Are the debates productive? Are they healthy discourse? Or are people just quibbling over nonsense? Those are the questions to ask when you see a decentralized ecosystem debating amongst itself.
It's the lens I use when I see hivers debating each other and it's the very same lens I used when I saw the recent Thorchain Debates.
Debate Strikes Thorchain | Quarreling on the Way to Valhalla
So what was the recent debate about? It all started with this Tweet from the official Thorchain X Account:
I'll give you the TLDR; of this Tweet thread. The thread talks about a new idea to modify the parameters of ThorFi such that the Protocol Owned Liquidity (PoL) would become more aggressive in entering pools when savers enter pools.
In simple terms: when savers (people who provide 1-sided liquidity. i.e. native BTC deposits) add liquidity, someone has to match that liquidity with RUNE. Up until now, that was matched by dual-sided liquidity poolers ("normal" LPs). This proposal asks for the PoL to become aggressive in becoming the one that matches it.
How would it match all those deposits? By effectively printing RUNE.
Now, this could create two scenarios:
- RUNE is overprinted and this is overly ambitious. It leads to a dilution of the RUNE token and ultimately is a net negative
- RUNE printing is capped and this is well managed as a feature. It leverages the value of the network and creates prosperity by driving in "synthetic liquidity", thus making the protocol more attractive
It could go either way. Judging on RUNE's track record, I was leaning more toward camp #2 that this feature would be a net positive for the ecosystem - albeit, a risk net positive. It's the equivalent of trading on margin IMHO.
You can see why this sparked a debate. Some people wanted to take the risk and do this to lever up the protocol and drive in more liquidity. Others just simply wanted to leave things be and let the protocol grow organically.
I was firmly in the middle. I wouldn't have been mad if it went either way. Afterall, I am a passive investor in Thorchain, have been for nearly 4 years and I don't get involved in the politics.
Why Do it In the First Place?
Why was this proposed in the first place? Well, the #1 issue facing Thorchain is increasing liquidity in the network. This is the #1 issue faced by all DeFi protocols that are based on AMMs (Automated Market Makers).
You need to increase liquidity in order to have good trading volume. If you have good trading volume, then LPs earn more and thus, more liquidity comes in.
There's a flywheel effect that takes place but you need to get big enough in order for that flywheel to work. Otherwise you'll do something like create a token to provide liquidity incentives, people don't provide enough liquidity and then you die a slow death. Something I have first-hand experience in with my work on DeFi protocols.
So this is a very important issue to solve. Is the proposal a good solution? I'm not sure. It uses leverage and token minting to build up liquidity in a synthetic way. Like I said, it could go either way and without some models built / testing in the real world, I don't know which way it would go.
The common response is: as long as RUNE doesn't crash in price, it will all be fine. Well that's great but RUNE has crashed in price before and that's not uncommon in crypto bear markets. We can't rely on token number go up to solve all of our problems.
What is the Future of Thorchain?
After hundreds of tweets from various Thorchain Community Members - and yes, I read them all - the debate reached the point where people wanted to have a Space.
It seemed that the debate reached the devs. Some devs were upset because this was not on the roadmap. Others were upset because they felt the ThorFi updates are a distraction from building the base layer of the protocol. Others though this would be a fantastic way to grow liquidity and should be prioritized.
9Realms posted a Poll asking if Thorchain should keep moving forward with ThorFi or get back to focusing on the base protocol.
A Space was eventually hosted (about 3 days ago) with 9Realms, Chad Bradford and a few other prominent community members/contributors.
Again, I'll give you the TLDR;
- The debate is about how to scale liquidity. Do we focus on the vanilla dual LPs and let it grow organically or try to use ThorFi to leverage up?
- ThorFi can give the effect of protocols like Celsius and others who use financial tactics/tweaks to grow liquidity
- CBradford seems to lean toward working on ThorFi and levering up
- That being said, he recognizes that the current state of Thorchain (without ThorFi being a focus) is still capable of becoming a $20B market cap protocol without the need for financial engineering
- ThorFi could make $100B market cap possible
Conclusion
The conclusion of the space? To focus on the Q1 roadmap, give ThorFi a backseat (for now) and focus on more core features like order books, perpetual swaps, etc.
The space was the end of the debates. The conclusion is to focus on the Q1 roadmap and core features. Then circle back to ThorFi later as the community and dev teams discuss it more.
I am in favor of this approach. I think we've reached an amazing point with what is already built on Thorchain. Order books are exciting but IMHO Perpetual Swaps are a MASSIVE market that Thorchain can tackle.
Rather than do financial engineering now while there are core features still on the table, I am in favor of focusing on the core features and then do financial engineering when the feature set (and the protocol itself) are larger.
Doing these financial engineering tactics when you're a $20B protocol is a lot more beneficial than when you're a $2B protocol. That is my personal opinion.
Ultimately, I found the debates to be healthy and productive. Thorchain is a diverse ecosystem of developers, contributors, investors and users. Debates are going to happen. As long as people aren't childish and focus on productive conversations, I feel that they are both necessary and beneficial in the long run.
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