Two days ago, the atebites X account highlighted that THORChain’s lending platform currently lacks sufficient bitcoin to reimburse its creditors.
At the time of the announcement, the overall bitcoin amount owed to depositors was 1,604, while the lending pool held only 592 bitcoin.
We need to be raising awareness on just how dire the situation is with Thorchain lending right now, presenting potential risks to the protocol itself.
As it stands, at current market rates for RUNE, total loan closure will generate 24 million RUNE.
1,604 in BTC collateral, 18,258… pic.twitter.com/OykZbMQCdx
— atebites (@ate_bites) January 8, 2025
As Lava founder Shehzan Maredia articulated in a post on X, when borrowing on THORChain, your bitcoin collateral is sold for their token, RUNE. Upon repayment of your loan, they exchange the RUNE back into bitcoin to return your collateral.
I anticipated the downfall of Thorchain in 2023 upon their introduction of the "lending" feature, and it’s happening now. The lesson people never seem to grasp: any system in crypto that is capable of failure will ultimately fail.
When you borrowed on Thorchain, they would liquidate your BTC collateral for their…
— Shehzan (@MarediaShehzan) January 10, 2025
The actual functioning of this process is a bit more complicated and is elaborated on THORChain’s website.
See images from the website below:
The main concern in this situation is that a significant portion of the value borrowed in U.S. dollar equivalents was taken out when bitcoin was significantly cheaper than its current price, according to atebites.
This indicates that for THORChain to fulfill its current obligations, it will need to create over 24 million RUNE (as of January 8). While this would only represent approximately 8% of the circulating supply of RUNE, it would lead to a depreciation in the asset’s value, which would further diminish THORChain’s capacity to acquire bitcoin on behalf of its creditors.
If traders begin shorting RUNE in addition to this, THORChain’s ability to procure the required quantity of bitcoin to settle its debts will be reduced even more.
This might result in a scenario similar to the Terra/Luna death spiral witnessed in 2022.
Thorchain continues operating as designed.
Yes, loan repayments exert downward pressure on RUNE price, but the scale is not alarming.
If you’re concerned, simply pay off your loan.
— Erik Voorhees (@ErikVoorhees) January 10, 2025
A core developer for THORChain, known as Nine Realms on X, also argued that THORChain is sturdy:
1/ Addressing Community Concerns
There’s been a lot of conversation lately about the condition of the network and the outstanding liabilities of the lending protocol.
Let’s examine the facts to clarify what’s actually occurring and why we remain assured in THORChain’s durability.
— Nine Realms (@ninerealms_cap) January 10, 2025
Given all this, if you’re still feeling uneasy about lending THORChain your bitcoin as collateral for a loan, you might consider redeeming it. If I were using the service, I certainly would.
This article is a Take. The views expressed are solely those of the author and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
