TL;DR
- THORChain has halted operations of its THORFi service due to financial issues and concerns over debt management.
- Its native token, RUNE, has dropped 19.33% in value over the last 24 hours, reflecting the crisis and causing uncertainty within its community.
- THORChain has implemented a 90-day restructuring plan to review and adjust operations, particularly in the savings and lending services.
THORChain, a protocol known for facilitating cross-chain swaps, announced a pause in operations of its THORFi service, which includes savings and lending programs.
The decision is related to a series of financial problems and concerns about its ability to manage the accumulated debt in its lending pools. Additionally, its native token, RUNE, has plunged in the last 24 hours, losing 19.33% of its value. This situation reflects a crisis that has generated a great deal of uncertainty within its community.
The THORChain team has implemented a 90-day restructuring plan. During this period, operations, specifically the savings and lending services, will be reviewed and adjusted with the goal of mitigating risks and ensuring the future stability of the protocol. While token swap functionalities will remain active, the suspended services are under thorough analysis due to issues related to Bitcoin reserve management and the issuance of RUNE to cover outstanding debts.
How Did the THORChain Crisis Originate?
The accumulation of debt within THORFi largely originated from Bitcoin loans issued when prices were significantly lower. This forced the creation of more RUNE to cover the deficits, a strategy that has raised concerns about the long-term viability of the system. Without a solid liquidation mechanism, the protocol faces an imminent collapse if users decide to withdraw their funds en masse, a scenario some have compared to the collapse of Terra/Luna in 2022.
The synthetic assets offered by THORChain are also under scrutiny. These assets are backed by liquidity pools that combine original cryptocurrencies with RUNE. The reliance on the native token and its volatility have increased the collateralization risks, raising concerns about potential deficits in the reserves.
In Search of a Solution
In response, the community and validators are exploring proposals to redesign the protocol’s economy. These measures aim to stabilize the system and ensure that it can meet its long-term obligations. John-Paul Thorbjornsen, founder of THORChain, expressed confidence that the protocol will be able to resolve its debts once the reforms are completed
