MULTICOIN CAPITAL THORChain (RUNE) Analysis By Tushar Jain, Spencer Applebaum & Shayon Sengupta Multicoin Capital is a thesis-driven cryptofund that invests in tokens reshaping entire sectors of the global economy. We rigorously research blockchain protocols, teams, and market opportunities to deliver venture capital economics with public market liquidity. Report Disclosures Disclosures: Multicoin Capital owns RUNE tokens. For ethical reasons, Multicoin Capital abides by a “No Trade Policy” for the assets listed in this report for 3 days (“No Trade Period”) following its public release. No officer, director or employee shall purchase or sell any of the aforementioned assets during the No Trade Period. As of the publication date of this report, Multicoin Capital Management LLC and its affiliates (collectively “Multicoin”), others that contributed research to this report and others that we have shared our research with (collectively, the “Investors”) own tokens of the project covered herein and stand to realize gains in the event that the price of the token increases or decreases. Following publication of the report, the Investors may transact in the tokens of the project covered herein. All content in this report represents the opinions of Multicoin. Multicoin has obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind – whether express or implied. This document is for informational purposes only and is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and Multicoin’s views as of this date, all of which are accordingly subject to change without notice. Multicoin has no obligation to continue offering reports regarding the project. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific token, and is not expressed as, or implied as, assessments of the quality of a token, a summary of past performance, or an actionable investment strategy for an investor. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or token discussed herein. The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond Multicoin’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all tokens discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision. 2 Executive Summary Multicoin Capital has accumulated a large position in R UNE, the native token of T HORChain, a decentralized cross-chain automated market maker (AMM). RUNE represents one of our largest public positions. We believe that THORChain—which provides a trust-minimized way to trade s pot tokens ( not just derivatives) across blockchains—is a foundational piece of crypto trading infrastructure that will play an increasingly critical role within the crypto ecosystem as it continues to grow bigger and become more diverse. There is a tremendous opportunity to build products that enable trust-minimized, cross-chain trading. In a world where many chains and tokens exist, traders naturally want to be able to trade assets across chains in a trust-minimized way. The first of such cross-chain trading examples was the T ier Nolan atomic swap . Since then, others such as S imple Payment Verification, Relays , and Merged Consensus have emerged. However, despite their best intentions, none of them ever successfully gained traction for an abundance of reasons (e.g., too slow, free option problem, too expensive, etc). In the years since the first cross-chain swap products launched a few years ago, the crypto ecosystem has become more heterogeneous: 80% of the top 25 tokens by market cap on C oinGecko are Layer 1 tokens of their blockchains. The diversity of chains creates the need for a trust-minimized, decentralized way to trade spot tokens across chains. As new smart contract platforms like Solana, Polkadot, Near, and Avalanche mature, the number of chains is growing. As these ecosystems mature, the overall technical composition of crypto will become more heterogeneous rather than homogeneous. Most investors have exposure to the blockchains they think will win; however, few actually have exposure to the growing heterogeneity of the overall ecosystem. This is a major opportunity, and we believe THORChain’s RUNE token is the best way to invest in this thesis. An Overview of THORChain THORChain is a decentralized cross-chain automated market maker (AMM) exchange that allows users to trade spot tokens across blockchains. It enables traders to swap tokens across various Layer 1 blockchains without taking on counterparty or custody risk (for example, a trader could swap spot ETH for spot DOT without ever using a centralized exchange). We w rote about the problems centralized exchanges create three years ago: 3 1. Counterparty risk : Users must send their cryptoassets to the exchange. Upon receipt, the exchange will credit the user’s account on its own internal ledger. Centralized exchanges maintain private, internal books. Some of the most egregious players have been found to have been running with fractional reserves and subsequently gone b ankrupt . Others are suspected of market manipulation and front-running their customers. 2. Speed: To minimize counterparty risk, users must withdraw their cryptoassets when they finish trading. This is a cumbersome and slow process. This process can be particularly painful if the user faces withdrawal limits imposed by the exchange. 3. Regulatory risk : Centralized exchanges are subject to local regulations even if they serve a global user base. Local governments can force exchanges to delist assets. For example, recently Coinbase, Kraken, and Gemini delisted XRP. Regulators may also shut down exchanges and seize assets (this is a particularly big problem in South Korea). 4. Theft risk: Exchanges are the largest holders of crypto around the world, and as such they are prime targets for hackers. 5. Cost : Trading fees in crypto are an order of magnitude higher than those of traditional public equity markets. For example, Coinbase Pro (one of the largest exchanges by volume) charges 0.50% on each trade for both market makers and takers on their entry level tier. Almost all of the discourse around decentralized exchanges (DEX) refers to intra-chain trading on exchanges like Uniswap, Sushiswap, Curve, and Serum. THORChain is novel because it supports native tokens across many chains, and is uniquely positioned to deliver on the original promise of decentralized exchange between any asset. A powerful byproduct of THORChain is that protocol teams can build on any THORChain-integrated blockchain and easily kickstart liquidity from other crypto ecosystems. For example, one of the primary reasons teams choose to build on Ethereum today is that they can launch a token on SushiSwap or Uniswap with immediate liquidity. Now, if a protocol team determines that Polkadot or Solana is better suited for their specific needs (e.g. high throughput and low latency), they can launch on those blockchains. Using THORChain, the new protocol can tap into the liquidity of the Ethereum ecosystem. This is not yet fully appreciated by the market. THORChain levels the playing field across smart contract platforms. The Opportunity Trading is one of the primary use cases for crypto. However, trading across chains requires users to trust centralized exchanges and use two wallets (e.g. M etaMask for Ethereum and S olFlare for Solana). This process is clunky. Swapping PERP tokens on Ethereum for SRM tokens on Solana is a UX nightmare. One solution to this problem is to trade synthetically. We recently published an overview of all the 4 major financial constructions that are being used to trade synthetic assets. However, synthetic trading cannot displace spot trading for a number of use cases. Why does spot trading matter? Because unlike stocks and bonds, many cryptocurrencies are actually useful and have native utility value. Oftentimes, users of Layer 1 networks need to use the tokens themselves to accomplish some explicit objective. A few examples: 1. Synthetic XMR on Ethereum isn’t privacy preserving. 2. Synthetic Helium Network Tokens (HNT) can’t be used to pay for wireless data transfers. 3. Synthetic Arweave (AR) can’t buy storage on the Arweave network. 4. Synthetic Siacoin (SC) or Filecoin (FIL) cannot be used to pay for data storage. 5. WBTC doesn’t oer the same censorship resistance properties as native BTC. Access to spot assets is becoming increasingly important as new, more useful Layer 1 networks launch. Tokens today have far more embedded