The community is extremely confused by the news that the THORChain protocol has lost its ability to settle payments. The project team has confirmed that they have temporarily paused the THORFi protocol related to lending and borrowing activities, and will spend 90 days to restructure.
THORChain falls into crisis, RUNE price plummets
Has THORChain lost its ability to settle payments?
On January 24, 2025 (Vietnam time), independent blockchain researcher TCB (@1984_is_today) posted a long tweet with the shocking information that: THORChain has lost its ability to settle payments.
.@THORChain is insolvent
— TCB (@1984_is_today) January 24, 2025
In the event of any large debt redemption and/or savers & synths deleveraging, it is certain that TC cannot meet its bitcoin and eth denominated obligations.
Validators decided to pause the network while they vote a restructuring plan
🔽🧵
THORChain is a platform that allows the exchange of native assets between different blockchains. THORChain operates as an independent Layer-1 DEX built on the Cosmos SDK. Currently, the project supports token swaps on chains including Bitcoin, Ethereum, BNB Chain, Avalanche, Cosmos Hub, Dogecoin, Bitcoin Cash, Litecoin and Base.
According to TCB, if there is any large debt redemption and/or savers deleveraging, for the BTC and ETH denominated obligations, THORChain will certainly not be able to meet them.
THORChain's liabilities include:
- $97 million in outstanding loans (BTC, ETH)
- Approximately $102 million in savings deposits and synthetic interest-bearing products (BTC, ETH)
So the total is $200 million in liabilities. However, the project's current assets are only $107 million in liquidity pools (LP). Not to mention that the assets in the LP can be withdrawn at any time, and users may panic and dump RUNE if anything happens.
According to TCB, the reason for this situation is due to the protocol's debt issuance mechanism. Debt obligations are fulfilled by minting RUNE tokens and selling them into the LPs. For example, a $4 million RUNE debt repayment order the day before has caused the protocol to owe a few more million RUNE.
In this situation, THORChain has 2 options:
- Let the RUNE price continue to plummet, with users front running, and if they come later they won't get anything and the protocol will collapse;
- "Rescue" the protocol, work together to increase the value of the protocol, and fill the $200 million debt gap.
If choosing the 2nd solution, the following actions need to be taken:
Here is what we think @thorchain needs to do if it is to survive this crisis and thrive on the other side of it :
— TCB (@1984_is_today) January 24, 2025
- All lending and savers positions are to remain frozen permanently.
- Take a snapshot of the debt (Value for savers, BTC/ETH - debt for lenders).
- Freeze all lending and saving positions;
- Take a snapshot of the assets;
- Tokenize the existing debt obligations and savings deposits of the protocol;
- Open a P2P trading market and set asset claim conditions to bring the fairest outcome for users.
TCB also dropped another bombshell that the THORChain validators have decided to "turn off the machine", stop the network operations to vote on a restructuring plan.
Of course, this is just news and a proposal from one side, TCB. We need to hear more opinions from the project itself and other observers.
Freezing lending features
According to community feedback, it's not the entire THORChain network that has been paused, but only the ThorFi - the financial protocol serving lending, saving, and other features as mentioned above.
Clarification: they paused ThorFi, not the DEX
— Haseeb ＞|＜ (@hosseeb) January 24, 2025
User Mark Jeffrey (@markjeffrey) added:
My understanding of what's going on with $RUNE right now:
— Mark Jeffrey (@markjeffrey) January 24, 2025
- Validators have used a multikey to pause Thor Lending repayments.
- Regular cross-chain DEX operations of Thorchain remain functional -- nothing else of than *Lending repayment specifically* is impacted.
- Why?… pic.twitter.com/N1vTAKckQu
- Validators have frozen the lending-related features.- The cross-chain DEX operations are still functioning normally.
As mentioned above, the repayment of debt obligations requires minting more RUNE (to buy back the collateral) -> RUNE price drops -> more borrowers are worried -> they want to repay the debt faster to get back the collateral -> mint more RUNE...
This cycle of events is causing even more panic in the user community. This scenario also reminds us of the 2022 liquidity crisis, which even spread to traditional banks like Silvergate Bank, Silicon Valley Bank, Signature Bank in 2023.
According to a screenshot from the project's Discord, the development team has announced the pause of THORFi, and is preparing restructuring proposals to address the current crisis. Meanwhile, the DEX is still operating normally.
Afterwards, the project's founder JP.THOR | ACEL (@jpthor) confirmed that:
THORFi paused via nodes.
- THORFi has been temporarily suspended, but the DEX exchange is still operating normally; - The project has decided to allocate 90% to restructure, with the help of other independent developers; - The protocol has earned a lot of money from transaction fees and can fully repay its debts after the restructuring. However, users are still extremely confused by the rather pessimistic situation of the project. And as predicted earlier, the RUNE price was heavily dumped, having decreased by more than 37% in the past 24 hours. It has decreased by 44% in the past 7 days, or more than 60% in the past 1 month.
The good news
- 90 days to restructure with help of @1984_is_today @tbr90 and @ninerealms_cap
- the protocol itself still works fine
- the protocol makes a tonne of maney and can service the debt - once restructured
From here
- everyone chill. Folks…RUNE price fluctuation on the 7-day chart, screenshot from CoinGecko at 01:10 PM on January 24, 2025 Compiled by Coin68
