THORChain Faces Insolvency with $200M Rising Debt
THORChain liability comprises approximately $97 million in borrowing liabilities and $102 million in liabilities stemming from synthetic assets and depositor funds
The THORChain network, a prominent decentralized exchange (DEX) facilitating cross-chain swaps, has initiated a 90-day suspension of Bitcoin (BTC) and Ethereum (ETH) withdrawals. The platform currently faces an estimated $199 million in debt, a situation prompting significant concern within the cryptocurrency community.
Moreover, the drastic measure, announced amidst a rising liquidity crisis, highlights the network’s urgent need for restructuring to avert insolvency.
THORChain Crisis Root and Investors Concerns
THORChain liability comprises approximately $97 million in borrowing liabilities and $102 million in liabilities stemming from synthetic assets and depositor funds.
The genesis of this crisis appears to lie in ThorFi, a component of the THORChain ecosystem offering risky lending and leverage features. These features, now deactivated, are widely considered the primary catalyst for the network’s precarious financial position.
Prominent community figures, including long-term investor TCB, have publicly voiced their concerns and proposed a roadmap for recovery.
Additionally, TCB’s recommendations include the permanent freezing of all lending and savers’ positions, the tokenization of outstanding claims, and the crucial step of burning all Protocol Owned Liquidity (POL) keys to mitigate centralization risks. These actions, though potentially disruptive, are viewed as essential to stabilizing the network and preventing further erosion of trust.
Node Operators Vote on Proposal
A proposal to increase outbound transaction bandwidth requires approval from THORChain’s 116 active node operators. A supermajority of 78 votes is necessary for passage.
As of this writing, key proposals such as “MaxTxOutOffset” and “MinTxOutVolumeThreshold” have garnered 54 votes, while “TxOutDelayRate” stands at 53. The outcome of this vote will significantly impact the network’s capacity to manage transactions during this critical period.
However, while cross-chain functionality currently remains operational, the uncertainty surrounding the network’s financial stability has triggered a substantial decline in the price of RUNE, the platform’s native token.
Following the announcement, RUNE experienced a price drop exceeding 30%, briefly falling below $2 – its lowest point since 2023.
“We observed a partial recovery of approximately 10%, but the situation remains volatile and highlights significant risks inherent in the decentralized finance (DeFi) landscape. Thorchain is overly complex and needs a return to first principles to grow. Until then, no smart capital will buy $RUNE or LP; the risks are too high” TCB says.
The next 90 days will be critical in determining THORChain’s ability to navigate this crisis and emerge with a more sustainable and robust operational model.