Two days ago, the atebites X account noted that THORChain Lending Service He currently does not have enough bitcoins to pay his creditors.
At press time, the total amount of bitcoins that would be refunded to depositors was 1,604, while the lending pool only had 592 bitcoins.
We need to raise awareness about how bad Thorchain lending is right now, posing a potential risk to the protocol itself.
As things stand, at current market rates for RUNE, the full closing of the loan 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 explained in a post on X, when you borrow on THORChain, they sell the bitcoin you offer as collateral for their own token, RUNE. When you pay off your loan, they sell RUNE for bitcoin to return your collateral.
I predicted Thorchain’s collapse in 2023 when they released their "loan" feature, and it’s happening now. The lesson people never seem to learn: any crypto system that can fail, will fail.
When you borrowed on Thorchain, they would sell your BTC collateral for your…
-Shehzan (@MarediaShehzan) January 10, 2025
The actual mechanics of how this works are a little more complex and are detailed on the THORChain website.
See screenshots of the website below:
The main problem in this scenario is that half of the value lent in US dollar denominations was borrowed when bitcoin was trading at prices significantly lower than those at which it trades today, according to atebites.
This means that for THORChain to meet its current demands, it will need to mint over 24 million RUNE (as of January 8). While this would be only about 8% of the circulating supply of RUNEwould lead to a reduction in the price of the asset, giving THORChain even less purchasing power as they attempt to buy back bitcoins on behalf of their creditors.
If traders started selling RUNE on top of this, THORChain’s ability to purchase the required amount of bitcoins to redeem its creditors would decrease even further.
This could lead to something similar to the Terra/Moon death spiral we saw in 2022.
That said, prominent project supporter Erik Voorhees shared that THORChain’s lending service is working as planned and there is no foreseeable danger:
Thorchain continues to function as designed.
Yes, loan repayments put downward pressure on the price of RUNE, but the scale is not dangerous.
If you’re worried, simply pay off your loan.
– Erik Voorhees (@ErikVoorhees) January 10, 2025
A lead THORChain developer who goes by the name Nine Realms on X also argued that THORChain is resilient:
1/ Address community concerns
There has been a lot of discussion recently about the state of the network and the pending liability of the lending protocol.
Let’s dig into the facts to shed light on what is really happening and why we continue to trust in THORChain’s resilience.
— Nine Realms (@ninerealms_cap) January 10, 2025
All that said, if you’re still nervous about lending THORChain your bitcoin as collateral for a loan, you might want to redeem it. If I were using the service, I would.
This article is a Carry. The opinions expressed are entirely those of the author and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
