Two days ago, the atebites X account pointed this out THORChain Lending Service It currently does not have enough Bitcoin to pay its creditors.
As of press time, the total amount of BTC to be repaid to depositors was 1,604, while the lending pool only contained 592 BTC.
We need to raise awareness about how bad Thorchain lending is in shape right now, posing a potential risk to the protocol itself.
In the current situation, according to the current market price of RUNE, the complete closing of the loan will result in the minting of 24 million RUNE.
1,604 BTC collateral, 18,258… pic.twitter.com/OykZbMQCdx
– Atebit (@ate_bites) January 8, 2025
As Lava’s founder, Shehzan Maredia, explained in a post on X, when you borrow on THORChain, they sell the Bitcoin you provided as collateral for their token, RUNE. When you pay off your loan, they sell the RUNE for Bitcoin to give you back your collateral.
I predicted the collapse of Thorchain in 2023 when they launched their project "Lending" Feature, this is happening now. The lesson people never seem to learn: Any cryptocurrency system that can fail will fail.
When you borrow on Thorchain, they will sell your BTC collateral for…
– Shehzan (@MarediaShehzan) January 10, 2025
The actual mechanics of how this works are a bit more complex and are detailed on the THORChain website.
See screenshots from the site below:
The fundamental problem with this scenario is that half of the value in US dollar denominations was borrowed when Bitcoin was trading at prices much lower than those at which Bitcoin is trading today, according to atebites.
This means that for THORChain to meet its current requirements, it will need to mint over 24 million RUNE (as of January 8). While this would only be about 8% of Rolling supply of RUNEThis could cause the price of the asset to fall, which would give THORChain less purchasing power as it attempts to buy back Bitcoin on behalf of its creditors.
If traders start shorting RUNE on top of that, THORChain’s ability to purchase the required amount of Bitcoin to recover its creditors will be further diminished.
This could lead to something similar to the Terra/Luna death spiral we saw in 2022.
However, prominent project proponent Erik Voorhees said that THORChain’s lending service is working as intended and that there is no foreseeable risk:
Thorchain continues to work as designed.
Yes, loan recovery puts downward pressure on RUNE price, but the volume is not dangerous.
If you’re worried, just pay off your loan.
– Eric Voorhees (@EricVoorhees) January 10, 2025
THORChain’s core developer, Nine Realms on
1/ Addressing community concerns
There has been a lot of discussion recently about the state of the network and the outstanding liability of the lending protocol.
Let’s dive into the facts to shed light on what’s really going on and why we remain confident in THORChain’s resilience.
– The Nine Realms (@ninerealms_cap) January 10, 2025
With all this said, if you are still concerned about THORChain lending your Bitcoin as collateral for a loan, you may want to redeem it. If I were using the service I would.
This article is a takes. The opinions expressed are entirely those of the author and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
Comments are closed, but trackbacks and pingbacks are open.