ThorChain Founder JP Thorbjornsen along with his development team decided to stop the ThorFi Savers program and ThorFi Lending for the next year. This decision was announced on Thursday after discussions with the community, developers, and node-operators.
Thorchain is decentralized liquidity protocol which allows cross-chain swaps of assets without using wrapped tokens. The platform allows users to directly trade in native assets, such as Bitcoin and Ethereum. RUNE tokens are used to facilitate the transactions and to ensure liquidity pools. The protocol, however, is currently undergoing major restructuring in order to be more secure and understandable.
Developers say that THORFi is a complicated component in the ecosystem and has been identified to be a major source of volatility. This is due, they claim, to the unrestrained redemptions, which are keeping away new participants, as well as hindering the progress of the roadmap for 2025. The team wants to make sure that protocol can scale effectively by pausing the features.
Pressure
RUNE tokens’ poor price movement is directly linked to an inflation of RUNE’s supply. Multiple mechanisms contribute to this inflation. One of them is block rewards that are distributed by validators. The value of RUNE, as with other chains, is reduced by minting it to reward the participants. The consensus is that the rewards for participating should be cut, although there are still disagreements about how and when to do this.
In addition to block rewards, mechanisms like Savers and Lending have created additional pressure. It was the intention of Savers to generate buy pressure on RUNE. Instead, they have exacerbated this situation, creating significant sell pressure as users withdrew their deposits.
Simple: when users enter Savers they have to purchase RUNE. But, once they exit they can sell it. The cycle is problematic when bitcoin outperforms RUNE. Users who leave at lower prices cause RUNE to fall further, creating a negative feedback loop.
Lending also has inflationary effects. Although it is no longer active, the lingering effects of its closure continue to impact RUNE’s price. RUNE is losing value, making it difficult to repay loans or collateral backed mostly by BTC and ETH. Due to the state of the cryptocurrency market, RUNE tokens are being issued in greater quantities to pay obligations. This further dilution is compounded.
Sunset Savers
Community members are concerned about the structural weakness of this protocol. They have asked for urgent action. Most immediate is the end of the Savers Program, which has continued to put downward pressure on RUNE’s price.
A 72-hour discussion and dissent period is included in the plan, which allows the community to express their concerns and possibly campaign against the decision. If no changes occur, a six-month “timeout” During this time, no more economic or political changes will be discussed. The developers will focus on the application layer and optimize bandwidth to accelerate development, without the distraction of THORFi.
After six-months, it is planned to tokenize Lending and Saver Positions, providing holders with early liquidity via a peer-2-peer exchange. A restructuring plan for the legacy holders of THORFi will be unveiled by 12 months to offer them liquidity. This could include a System income tax that remains until all positions have been cleared.
Others have suggested a radicaler solution, namely the closing of all loans. ThorTrades voiced his concerns on X about the sunset plans.
“If BTC trades at $75-85k, Rune will trade under $3 likely. Best to use this bad moment in the market to get rid of something bad (loans),” He wrote that this aggressive action must be undertaken immediately. “The right moment to force loans to close was above $6 but the second best moment might be now.”
Thorchain seems to be at a fork in the road. Combining RUNE’s underperformance, an inflated supply and increasing liabilities could undermine the long-term viability of this protocol. This spiral is a clear indication that immediate action must be taken to stop it. Thorchain’s protocol has achieved great success in terms of decentralization and liquidity across chains, but the team must now tackle these challenges to make sure it survives.
It is now up to node operators whether they will cooperate, and how the community’s backlash develops. JP said it best: “prepare your pitchforks,” You will need to be able to make tough decisions in order to preserve the protocol.
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