ThorChain Faces Financial Crisis Amid DeFi Turmoil

By: Eva Baxter

THORChain, a prominent decentralized finance (DeFi) platform, is grappling with a financial crisis after reports surfaced indicating a $199 million liability in its lending and savings programs. The crisis has prompted the suspension of Bitcoin and Ethereum withdrawals within these programs, pausing debt repayments and synthetic asset redemptions as the platform seeks to restructure its debts.

The severity of the situation was highlighted when an investor and protocol node runner, TCB, revealed THORChain's staggering debts, composed of $97 million in loans and $102 million in savers and synthetic assets. Despite having $107 million in liquidity on reserve, which can be withdrawn anytime by liquidity providers, the imbalance poses a serious threat to the platform's stability, raising alarms among the community and prompting discussions around a potential restructuring of its debts to ensure long-term viability.

ShapeShift CEO Erik Voorhees noted that the experimental nature of the lending and savings programs added significant risks to the platform. "Lending and Savers were experimental additions that ultimately proved too risky," he explained. This sentiment was echoed by community contributor Proof of Steve, who noted excessive dependency on the native RUNE token for covering risks as a vulnerability, thereby advocating for the suspension and reevaluation of these features.

Despite the ongoing crisis, THORChain's core trading and swapping functions continue without disruption. John-Paul Thorbjornsen, founder of THORChain, assured the community that the platform generates adequate revenue to address its liabilities post-restructuring. However, he cautioned that the RUNE token might face further price volatility during this period, compounded by speculative short-selling activities that have recently led to a notable 30% decline in its value.

As a result of these challenges, THORChain has seen a substantial decrease in its total value locked (TVL), dropping over $100 million since early January to roughly $297 million, according to DeFiLlama. Nonetheless, notable figures within the community remain optimistic about THORChain's potential recovery, continuing to explore all strategies to enhance platform viability and user trust.