3Commas Capital: Why We Are Bullish on the Multi-Chain DEX THORSwap?
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3Commas Capital: Why We Are Bullish on the Multi-Chain DEX THORSwap?
THORSwap: The first multi-chain DEX to offer cross-chain swaps using the THORChain network.
Navigating Web3 tides with focused insightsAuthor: 3Commas Capital
Translation: TechFlow intern
1. What is THORSwap?
THORSwap is the first multi-chain DEX to offer cross-chain swaps using the THORChain network.
*THORChain is a decentralized liquidity protocol that allows users to swap tokens across blockchains without relying on third-party platforms like CEXs.
2. What problem does THORSwap solve?
Various unique applications run on L1 blockchains (including many L2 solutions), but there has been no simple way to exchange assets between these ecosystems.
THORChain/Swap solves this by enabling cross-chain liquidity and trading without requiring asset bridging or reliance on CEXs.
3. How does THORChain work?
THORChain acts as a vault operator, monitoring deposits and withdrawals. This helps create decentralized liquidity while eliminating the need for centralized intermediaries or derivative solutions based on wrapped assets.
THORChain functions like a cross-chain Uniswap, with its native token $RUNE serving as the liquidity pair in every pool (e.g., ETH/RUNE, BTC/RUNE). $RUNE is also used to pay transaction fees, participate in governance, and serve as collateral and staking for validators.
4. Positioning of THORSwap
THORChain itself does not have user-facing products. THORSwap is effectively the primary trading hub for THORChain and already supports over 7 major L1 blockchains and more than 25 crypto assets.
5. Economic Performance
Current TVL is approximately $1.1 billion, with $458 million locked in pools.
Trading volume on THORChain and THORSwap has been steadily increasing.
In March, trading volume on THORSwap hit a record high of $563 million. With a standard 0.3% fee, this would generate $1.6 million in revenue, 75% of which goes to vTHOR holders.
TVL isn't very high, but liquidity was constrained during the testnet phase. Despite weak overall DeFi TVL performance, its liquidity has sharply rebounded since March this year. THORChain/Swap benefits from integration with TERRA (LUNA & UST).
6. Moat / Competition
While THORSwap is currently the main exchange on THORChain, it still faces several competitors. It's difficult for DEXs/AMMs to build strong moats—liquidity and trading tend to flow toward protocols offering the highest incentives.
In the long term, self-incentivized liquidity is unsustainable. Ultimately, capital will gravitate toward exchanges with the strongest reputation and best user experience. As the trading flywheel turns, an exchange can become a solid money printer: higher volume → more revenue → greater value creation for the community → higher rebate discounts → more trading opportunities…
THORSwap accounts for about 25% of THORChain’s total trading volume. We expect its dominance to grow over time.
7. Why are we bullish on THORSwap?
(1) Cross-chain trading is a structurally growing market
As the landscape of L1 and L2 blockchains expands, demand for moving assets across chains will continue to grow. Users will prefer optimal solutions.
Uniswap cannot satisfy users’ needs to trade between ETH and BTC. Users must rely on wrapped tokens like wBTC. Wrapped tokens are not native—they are not secured by the underlying blockchain.
Alternatively, users can use Binance or other CEXs to trade across chains. This works because user assets are pooled, and wallets are just database entries. But then it’s no longer your wallet or your tokens.
THORSwap lets users keep control of their wallets and assets.
① Decentralized—no account required
② Non-custodial—users trade directly from their own wallets
③ Supports 20+ wallets across 7 chains
④ Seamless swapping across multiple blockchains—no need for wrapped tokens
⑤ Professional 24/7 customer support team
(2) THORSwap can go beyond THORChain / DEX aggregators
The THORSwap DEX has already processed over $1 billion in trading volume, with over 75,000 monthly active users. But this is just the beginning.
THORSwap aims to become a cross-chain DEX aggregator—a one-stop DeFi exchange capable of scaling cross-chain trading volume to $1 trillion. THORSwap will not only leverage THORChain but also integrate additional bridges to access liquidity across all chains.
Its aggregator is designed to achieve over $7 trillion in monthly trading volume by connecting to popular chains:
① Ethereum long-tail assets and THORChain-native assets
② Terra integration
③ More EVM chains (Avalanche, Fantom, Polygon, Arbitrum, etc.)
④ Solana long-tail assets
⑤ IBC (Cosmos) assets
The THORSwap aggregator will be incentivized through single-sided staking (vTHOR), which captures value from 75% of trading fees.
(3) Focus on innovation and community
The more THORChain builds, the more features THORSwap can offer. Once THORChain’s Synths functionality is activated, THORSwap users will be able to mint, redeem, and trade synthetic assets directly on THORSwap.
THORSwap excels in user experience and community outreach within the DeFi space. The team developed the highly useful THORYield app, allowing users to track all their THORChain yields. It also supports the THORChads DAO, which runs on the community-owned THORChad rewards platform. THORSwap supports such community initiatives through funding, marketing, IDOs, and broader community engagement.
(4) Valuation
To estimate THORSwap’s value and the $THOR price, we must make several assumptions—specifically, projected trading volume on THORChain and THORSwap’s market share (TS/TC ratio).
To estimate expected total volume on THORChain, we must first estimate market size, then THORChain’s market share. We need:
① Estimate total decentralized trading volume
② Assume what portion of that volume is cross-chain
③ Assume THORChain / THORSwap’s market share
④ Decentralized trading volume
DEX Trading Volume
The chart below shows how DEX trading volume has grown over the past two years.
Decentralized exchanges have been steadily gaining market share from traditional centralized exchanges. The DEX/CEX ratio rose from 6% at the beginning of 2021 to 12% by year-end. We expect this trend to continue.
In 2021, the DEX industry achieved a total trading volume of $1.25 trillion, averaging $104 billion per month. From January to December, DEX volume grew at a 6.1% CMGR (Compound Monthly Growth Rate).
Assuming a similar CMGR in 2022, we estimate monthly DEX volume in December could reach $146 billion, implying an annualized volume of $1.75 trillion.
Cross-chain Volume
Of this $1.75 trillion DEX volume, how much comes from cross-chain trades?
A recent study on Thorchain economics by Fabian D found that around 43% of Binance trades (which account for roughly two-thirds of CEX volume) occur between assets from different chains.
Therefore, assuming a 40% rate for potential cross-chain volume gives us a cross-chain TAM (Total Addressable Market) of $703 billion annually.
Estimates for THORChain and THORSwap
We now know the annual cross-chain TAM is $703 billion. This volume will be split between traditional wrapped solutions and spot trading, with THORChain being the only current solution for true spot cross-chain swaps. Given the clear advantages of spot trading over wrapping, we assume 80% of volume will shift to spot. Thus, THORChain’s TAM is $563 billion.
Although competition is inevitable in the coming months or years, THORChain has an early leadership position and potential for market dominance. If we assume THORChain captures 80% of this TAM—similar to Uniswap’s 80% share in DEX volume—its annualized trading volume would be $450 billion.
Currently, THORSwap accounts for about 23% of THORChain’s volume. As THORSwap evolves into a key aggregator, this share is likely to increase. Even if it stays at 23%, this implies an annualized volume of $103 billion for THORSwap ($8.5 billion per month).
Assuming a standard 0.3% fee, THORSwap could generate $310 million in annualized protocol revenue by year-end.
Implied Valuation
The entire DEX industry currently has a market cap of $25 billion and $1.4 trillion in annualized trading volume. At a 0.3% fee, this translates to $4.2 billion in annual DEX revenue. Therefore, the sector’s market cap is 5.9x its annual protocol revenue.
For THORSwap, the fully diluted market cap is $445 million, and its market cap is only 1.4x its annual protocol revenue. By comparison, this means the token is trading at a 75% discount relative to the industry average.
Note: The author of this article, 3Commas Capital, holds a position in THOR. This is not investment advice.
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