Two days ago, the atebites X account showed that the THORChain lending service currently does not have enough bitcoins to repay its lenders.
As of press time, the total amount of bitcoin to be returned to depositors was 1,604, while the lending facility had only 592 bitcoin.
We need to raise awareness of how bad Thorchain lending is right now, which poses a huge risk to the regulation itself.
As it is, at the current mark in the RUNE market rates, the complete closing of the loan will release 24 million RUNE.
1,604 in BTC collateral, 18,258… pic.twitter.com/OykZbMQCdx
– ate (@ate_bites) January 8, 2025
As Lava founder Shehzan Maredia explained in a post on X, when you borrow from THORChain, they sell the bitcoin you put up as collateral for their own token, RUNE. When you pay off your loan, they sell RUNE for bitcoin to return your collateral.
I predicted the fall of Thorchain in 2023 when they launched theirs "to borrow" feature, and it’s happening now. A lesson that people never seem to learn: any crypto system that can fail will fail.
When you borrowed from Thorchain, they would sell your BTC collateral for their profit…
– Shehzan (@MarediaShehzan) January 10, 2025
The actual mechanics of how this works are complex and are detailed on the THORChain website.
See screenshots from the website below:
The main problem in this situation is that half of the amount borrowed in US dollar weeks was borrowed when bitcoin was sold at much lower prices than what bitcoin is trading today, according to atebites.
This means that in order for THORChain to meet its current needs, it will need to raise upwards of 24 million RUNE (as of January 8). Although this may only be about 8% of the circulating supply of RUNE, it will lead to a decrease in the price of the asset, which will give THORChain the power to buy even less as they try to buy bitcoin back on behalf of their creditors.
If traders were to start running short of RUNE on top of this, THORChain’s ability to buy the necessary amount of bitcoin to bail out its creditors would decrease even further.
This could lead to something like the Terra/Luna death spiral we saw in 2022.
With that, prominent project backer Erik Voorhees shared that THORChain’s lending service is working as intended and that there is no apparent risk:
Thorchain continues to work as designed.
Yes, the loan redemption causes downward pressure on the price of RUNE, but the scale is not dangerous.
If you are worried, just go and pay off your loan.
— Erik Voorhees (@ErikVoorhees) January 10, 2025
The main developer of THORChain who goes by the name Nine Realms on X also revealed that THORChain is resilient:
1/ Dealing with Social Problems
There has been a lot of discussion recently about the state of the network and the remaining debt of the lending protocol.
Let’s dive into the facts to shed light on what’s really going on and why we remain confident in THORChain’s endurance.
– Nine Realms (@ninerealms_cap) January 10, 2025
With all of this being said, if you still feel ambivalent about lending your THORChain bitcoin as collateral for a loan, you may want to redeem it. If I were using the service, I would.
This article is a Take it. The views expressed are entirely those of the author and do not reflect those of BTC Inc or Bitcoin Magazine.