Decentralized lending and borrowing platform THORChain has halted Bitcoin and Ethereum withdrawals on its lending and saving program due to certain liquidity concerns. On January 24, 2025, the price of RUNE plunged by 30% due to speculation that the chain is no longer solvent. The event of insolvency triggered instant selling, leading to down ward pressure on the price of RUNE tokens. THORhain is actually a deFi lending and borrowing protocol. Now it has paused Bitcoin (BTC) and Ethereum (ETH) withdrawals on its lending and savers programs to prohibit the risk of potential insolvency. Network node operators have announced and implemented a 90-day pause to propose a plan to resolve the project’s debts. In this article, we’ll discuss the reasons behind the insolvency, THORChain(RUNE) price declines, and the potential solutions to resolve the crisis.
THORChain(RUNE) price declines 30% as THORChain Pauses Bitcoin, Ether Withdrawals
As of January 24, THORChain has officially stopped the withdrawals of Bitcoin (BTC) and Ethereum (ETH) from its lending and Savers products. The operators of THORChain have stopped its lending program for 90 days to address their debt issue. The chain currently has around $200 million in BTC and ETH-denominated liabilities that cannot be paid out.
THORChain’s lending and savers programs have allowed individuals to earn yields using Bitcoin and Ethereum. The pause is due to the vulnerabilities found in the protocol’s financial structure. It has been announced on the Telegram and Discord channels of the project.
The event has, however, affected the price of RUNE, the native cryptocurrency of THORChain. The price of RUNE has plunged around 30% in the last 24 hours with its market capitalization decreasing to under $800 million and daily trading volume surging by 112% to $758 million. On January 23, the average trading volume was below $250 million.
Before these reports became public, the price of RUNE was $3.35. However, after the event happened, the price of RUNE dropped to $2.10 amid rising selling pressure. When we speak from a trading point of view, increasing trading volume along with increasing price is a bullish signal. However, in the case of RUNE, the rise in volume along side the price drop indicates a strengthening price drop.
The After Effects of the Decision
The decision has sparked a fire in the whole crypto community. Many crypto community members have raised concerns about the THORChain(RUNE) price declines. the decision has triggered panic selling among traders and investors, driving downward pressure on the price of RUNE tokens.
A solution to this problem
TCB proposed solutions to the problem for THORChain. However, there are certain challenges to these solutions.
- Continue Operations Without Intervention: This approach allows THORChain to extract 5-7% of the system’s value by a select few who exit early. This will trigger a downward spiral in the price of RUNE. Around $75 million would go to those who exit first, while $1.5 billion in value could be wiped out if this solution is implemented. This will eventually destroy the THORChain.
- Default and Rebuild: THORChain can default on its debts and declare bankruptcy, maintaining the valuable elements of its ecosystem. By utilizing these assets, the community and stakeholders could operate together to grow the ecosystem. This approach will help them to restore the $200 million in outstanding capital over time.
As we said in the beginning, both these solutions come with certain challenges.
What is THORChain
THORChain is a decentralized liquidity protocol that allows individuals to swap their digital assets in a permissionless setting. It was established in 2018 by a team participating in a Binance Dexathon. THORChain enables cross-chain liquidity and minimizes the need for centralized exchanges (CEXs) and third parties within the decentralized finance (DeFi) space.
How Does it Work?
THORChain is a layer-1 blockchain network based on the Cosmos SDK and Tendermint. It operates as a cross-chain permissionless decentralized exchange (DEX) and leverages Threshold Signature Schemes (TSS) to secure its leaderless asset vault. A layered Byzantine Fault Tolerance (BFT) consensus algorithm is provided by Tendermint and TSS.
There will be 4 types of participants in the THORChain ecosystem:
- Swappers: They utilize liquidity pools to swap digital assets.
- Liquidity providers: They add liquidity to pools and thereby earn rewards for their efforts.
- Node operators: They provide bonds and are paid for securing the system.
- Traders: They will examine and rebalance pools with the intention of making profits.
THORChain does not wrap digital assets before swapping, instead, they utilize native assets on THORChain to do autonomous and transparent asset swaps.
THORChain (RUNE) has experienced a steep price drop amid financial uncertainty. As of January 25, RUNE is trading at a price of $2.43. It has dropped 19.38% in the last 24 hours and 37.78% over the previous week. However, the price drop has raised concerns among some investors, some analysts believe it is an opportunity for long-term investors looking for a steady return.