THORChain urgently drops ‘risky’ DeFi features amid $199 million debt

THORChain has suspended Bitcoin and Ethereum withdrawals within its lending and savings programs after reports of a $199 million liability surfaced.

On Jan. 24, THORChain founder John-Paul Thorbjornsen disclosed that validator node activities for THORFi services have been paused. This suspension temporarily halts debt repayments and synthetic asset redemptions while validators deliberate on a restructuring plan.

Despite these disruptions, trading and swapping functions remain operational.

The problem

On Jan. 24, TCB, a prominent investor and protocol node runner, revealed that THORChain’s debts include $97 million in loans and $102 million in savers and synthetic assets.

Meanwhile, the protocol holds $107 million in liquidity, which liquidity providers can withdraw at any time. This imbalance poses a significant risk to the platform’s stability.

To address this situation, TCB highlighted two possible scenarios where a small percentage of creditors withdraw their funds rapidly, risking a collapse, or the protocol pauses operations to restructure its debts. The latter option aims to ensure the platform’s long-term viability.

ShapeShift’s CEO Erik Voorhees further explained that the lending and savings programs were experimental features that introduced significant risks.

According to him:

“Lending and Savers were two additions to Thorchain which were experimental. At this point, it’s clear these designs failed, they were too risky. While these functions were not core to the protocol, their risk has been a dismal overhang for a while–nobody was sure how long it would take for users to clear out their positions.”

Another contributor, Proof of Steve, stated that excessive reliance on the RUNE, the protocol’s native token, to cover risks made the platform vulnerable to external threats. He supported the suspension, noting it gives the community time to devise a sustainable solution.

ThorChain profitability

Thorbjornsen assured users that the platform generates sufficient revenue to address its liabilities after restructuring. However, he warned RUNE that it could experience further price drops during this period.

Proof of Steve also shared an update showing that the protocol revenue has remained stable, with a recent uptick in unique daily depositors.

TCB also pointed out that THORChain generated over $30 million in fees last year and is on track for higher revenue this year.

THORChain TVL and RUNE decline

Since the announcement, RUNE’s price has dropped by nearly 30%, hitting a two-year low of $1.9 before recovering slightly to $2.4 at the time of writing.

TCB attributed the decline to speculative short sellers betting on further instability. He reassured the community that the protocol had turned off the features fueling the downward cycle.

He wrote :

“The majority of the selling volume is perp short sellers speculating it’s going into a reflective negative cycle. The features that could send it in a downward reflective spiral are disabled and will be eliminated from the protocol, it’s the only way.”

Meanwhile, the total value locked (TVL) on THORChain has dropped by over $100 million since Jan. 7, standing at $297 million, according to DeFiLlama data .

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