In a turn of events that left many crypto enthusiasts shocked, Thorchain (RUNE) experienced a significant price drop of approximately 26% on January 24th, plummeting from $3 to a mere $2. Based on current market data, the token is currently trading at $2.18, marking a 30% decrease within a 24-hour span.
The sudden dip in price has sparked anxiety among a broad spectrum of netizens, with fears of potential Thorchain insolvency coming into the limelight. Amid these growing concerns, the protocol has temporarily suspended its lending and saving services.
A prominent member of the Thorchain community, TCB, made a bold declaration on his page stating that “Thorchain is insolvent”. He offered an in-depth explanation, highlighting the project’s inability to meet its obligations in Bitcoin (BTC) and Ethereum (ETH), particularly in the event of a large debt redemption or deleveraging from savers and synths. This precarious situation has prompted validators to halt the network’s operation as they deliberate on a possible restructuring plan.
According to TCB, Thorchain’s total liabilities amount to a staggering $200 million, a figure that encompasses both its lending and saving programs. These liabilities are backed by $107 million worth of non-locked liquidity. The thread further elaborated on the system’s heavy dependence on minting the project’s token, RUNE, drawing parallels between RUNE and Terra’s UST and LUNA for a more comprehensive perspective.
In the wake of these revelations, Thorchain acknowledged the complex nature of its system, admitting that it has become “so complicated that only a handful of people fully understands how the leveraged feature and liquidity works with each other and affects the underlying assets.”
The current state of RUNE contradicts the optimism that many analysts and market observers previously expressed. Approximately five months ago, an analyst known as @cryptojack shared his bullish perspective on the digital currency, predicting a 4x gain. At that time, RUNE was trading at around $3.7. A 4x increase would see the coin hitting the $14 mark.
Thorchain’s founder, JP, expressed his belief that halting the lending and saving services was the right course of action to prevent a potential “death spiral” of depositors rushing for the exit. The liabilities are set to be tokenized during the 90-day restructuring period, with 10% of protocol fees being used to accumulate RUNE to rebuild the reserve.
While this approach has been met with applause by some community members, a section remains unconvinced, adding to the mixed sentiments surrounding the project.
The situation facing Thorchain serves as a stark lesson to other over-leveraged projects in the crypto sphere, underscoring the importance of robust financial management and transparency in this rapidly evolving sector.
