THORChain Pauses THORFi Services Amid Financial Uncertainties

Cross-chain swap protocol THORChain has paused its THORFi services due to financial uncertainties and insolvency allegations.

This action is part of a 90-day restructuring plan aimed at addressing issues related to its “Savers and Lending” programs, which have accumulated significant unserviceable debt.

While trading functionalities like swaps remain active, lending operations under THORFi are currently on hold. Validator nodes have enforced the restructuring initiative to mitigate these challenges. Notably, Rune, THORChain’s native token, has seen a 30% price drop over the past 24 hours, according to The Block’s price page.

The pause seeks to prevent a rush of withdrawals that could destabilize the platform further. Haseeb Qureshi, managing partner at Dragonfly, described this situation as akin to a “bankruptcy freeze,” reflecting a serious liquidity issue.

Concern has arisen regarding THORChain’s ability to meet debtor obligations amid widespread redemptions, especially given a lack of bitcoin reserves in THORFi lending pools. This predicament stemmed from significant bitcoin borrowings when prices were lower, necessitating the minting of additional Rune to cover liabilities. The absence of liquidations within the protocol raises fears that this issue could lead to a drastic fall in Rune’s value and reduce THORChain’s purchasing power, potentially echoing the Terra/Luna collapse of 2022.

Furthermore, THORChain’s synthetic assets, or synths, which are derivative tokens simulating the value of cryptocurrencies such as bitcoin and ether, face scrutiny. These assets depend on liquidity pools that balance the original asset and Rune. The protocol’s reliance on Rune for collateralization and its vulnerability to market volatility may heighten these risks, with some community members suggesting potential insolvency.

As community members, including validators, consider proposals for an economic redesign to stabilize the network, the founder expresses confidence in the protocol’s future. John-Paul Thorbjornsen, Thorchain’s founder, stated, “The protocol makes a ton of money and can service the debt — once restructured.”

It’s worth noting that Thorchain has faced multiple protocol hacks in the past.