THORChain banned Bitcoin and Ethereum withdrawals in its lending programs and savings accounts after reports surfaced of a $199-million liability.
John-Paul Thorbjornsen, founder of THORChain and THORFi revealed that the activities at validator nodes for THORFi have been paused on Jan. 24. The suspension of debt repayments, and the redemption of synthetic assets is temporary. Validators are deciding on a restructuring strategy.
The trading and swapping function remains operational despite the disruptions.
This is the problem
On Jan. 24, TCB, a prominent investor and protocol node runner, revealed that THORChain’s debts include $97 million in loans and $102 million in savers and synthetic assets.
The protocol currently holds $107,000,000 in liquid assets, from which providers of liquidity can take any amount at their discretion. This imbalance poses a significant risk to the platform’s stability.
To deal with this issue, TCB outlined two possible scenarios. A small group of creditor withdraws their funds quickly and risks a crash, or, the protocol pauses its operations in order to restructure it debts. The latter option aims to ensure the platform’s long-term viability.
ShapeShift’s CEO Erik Voorhees further explained that the lending and savings programs were experimental features that introduced significant risks.
According to him
“Lending and Savers were two additions to Thorchain which were experimental. At this point, it’s clear these designs failed, they were too risky. While these functions were not core to the protocol, their risk has been a dismal overhang for a while–nobody was sure how long it would take for users to clear out their positions.”
Another contributor, Proof of Steve, stated that excessive reliance on the RUNE, the protocol’s native token, to cover risks made the platform vulnerable to external threats. He backed the suspension and noted that it allows the community to come up with a viable solution.
ThorChain Profitability
Thorbjornsen assured the users that after the restructuring, RUNE would generate sufficient revenues to pay its debts. He warned RUNE, however, that the company could see further price cuts during this time.
Proof of Steve has also released an update that shows the revenue from protocol transactions is stable and there’s been a recent increase in daily unique depositors.
TCB has also stated that THORChain earned over $30,000,000 in fees and will likely generate higher revenues this year.
TVL-THORChain and RUNE are declining
Since the announcement, RUNE’s price has dropped by nearly 30%, hitting a two-year low of $1.9 before recovering slightly to $2.4 at the time of writing.
TCB attributed a decline in the market to speculative sellers who were betting on more instability. He reassured community members that protocol has turned off features that fuel the downward cycle.
The writer wrote:
“The majority of the selling volume is perp short sellers speculating it’s going into a reflective negative cycle. The features that could send it in a downward reflective spiral are disabled and will be eliminated from the protocol, it’s the only way.”
DeFiLlama says that since January 7, the total locked value (TVL) of THORChain is down by $100,000,000, standing at 297,000,000, now.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
