THORChain, a decentralized finance platform, recently faced a major setback as it suspended Bitcoin and Ethereum withdrawals within its lending and savings programs. This decision came after reports surfaced of a $199 million liability that the platform needed to address.
The founder of THORChain, John-Paul Thorbjornsen, disclosed on Jan. 24 that validator node activities for THORFi services had been paused. This led to the temporary halt of debt repayments and synthetic asset redemptions while validators worked on a restructuring plan. Despite these disruptions, trading and swapping functions on the platform remained operational.
The main issue at hand was the imbalance in THORChain’s debts and liquidity. Reports revealed that the platform had $97 million in loans and $102 million in savers and synthetic assets, while holding $107 million in liquidity. This imbalance posed a significant risk to the stability of THORChain. To address this, the platform needed to either risk a collapse by allowing a small percentage of creditors to rapidly withdraw their funds, or pause operations to restructure its debts for long-term viability.
Erik Voorhees, CEO of ShapeShift, emphasized that the lending and savings programs on THORChain were experimental features that introduced significant risks. He acknowledged that these designs had failed and were too risky, posing a constant overhang of uncertainty.
Moving forward, THORChain assured users that the platform generated enough revenue to address its liabilities after restructuring. However, they warned that the native token, RUNE, could experience further price drops during this period. Despite the challenges, the platform’s revenue remained stable, with an increase in daily depositors.
Since the announcement, the price of RUNE had dropped by nearly 30%, hitting a two-year low before recovering slightly. This decline was attributed to speculative short sellers betting on further instability. However, measures were taken to disable features fueling the downward cycle, ensuring the platform’s stability.
The total value locked (TVL) on THORChain also saw a significant drop since the beginning of the year, standing at $297 million. Despite these challenges, the platform remained focused on addressing its liabilities and ensuring the long-term sustainability of its operations.