THORChain Halts BTC & ETH Withdrawals as RUNE Plunges 37% Amid Debt Crisis

THORChain, a decentralized cross-chain liquidity protocol, has suspended withdrawals for Bitcoin (BTC) and Ethereum (ETH) from its lending and savers programs under the THORFi platform. 

The move, approved by network node operators on January 23, is part of a 90-day pause designed to address financial risks and stabilize the protocol’s operations.

The suspension comes amid rising concerns about THORChain’s ability to meet its liabilities, which are estimated to be around $200 million. Trading and cross-chain swaps, the protocol’s core services, remain unaffected.

Temporary Suspension of Lending and Savers Programs

THORChain’s lending and savers programs, which allow users to earn yields or borrow using BTC and ETH, have been paused to mitigate potential insolvency risks. 

Messages from THORChain’s Discord and Telegram channels reveal that network validators implemented the pause after identifying vulnerabilities in the protocol’s financial structure.

The suspension aims to prevent a situation where simultaneous closures of lending and savers positions, combined with a decline in the price of RUNE, could lead to an insolvency crisis. 

Orion (9r), a pseudonymous THORChain developer, explained the decision, stating, “To safeguard LPs and maintain network stability, we are recommending nodes vote to temporarily suspend ThorFi redemptions.”

Protocol Liabilities and RUNE’s Role

THORChain’s financial model relies heavily on RUNE, its native token, to meet lending obligations. The protocol mints RUNE to cover liabilities, which are then sold into liquidity pools. 

Deposits for lending and savers programs were already halted a year ago due to growing concerns over the risks involved.

Community members estimate the protocol’s liabilities to include $97 million in lending and $102 million in savers, creating concerns that liquidity providers (LPs) could withdraw or sell assets during periods of panic. 

A community member, TCB, warned, “If nothing is done, it will be a race to the exit, and the entire protocol’s value will vanish.”

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Community and Expert Reactions

The decision has prompted varied reactions from the crypto community. Eric Voorhees, founder of ShapeShift, acknowledged the necessity of the pause, noting, 

“At this point, it’s clear these designs failed, they were too risky.” 

Voorhees emphasized that lending and savers programs were experimental features that became unsustainable over time.

Others, like Dragonfly Capital’s Haseeb Qureshi, questioned whether this marked the first on-chain restructuring effort in the decentralized finance (DeFi) space. THORChain’s founder, John-Paul Thorbjornsen, reassured users, stating, 

“The protocol makes a ton of money and can service the debt — once restructured.”

RUNE’s Market Performance

RUNE has faced a steep decline amid financial uncertainty. Trading at $2.43 at press time, it has dropped 19.38% in the last 24 hours and 37.78% over the past week. 

With a circulating supply of 350 million tokens, RUNE’s market cap currently stands at $844,744,548.

While the sharp price decline has raised concerns, some analysts view it as an opportunity for long-term investors, anticipating a recovery after the restructuring period concludes.