THORChain, a decentralized interblockchain settlement protocol, has paused Bitcoin (BTC) and Ether (ETH) withdrawals from its lending and savers programs. The decision, announced by network node operators on Friday, aims to mitigate the risk of a liquidity crisis that could affect the platform’s financial stability.
The pause was implemented as part of a 90-day strategy to develop a plan for addressing the protocol’s debts, according to messages shared on THORChain’s Telegram channels. While the lending program is limited to BTC and ETH, THORChain’s saver vaults support a broader range of assets, increasing the potential exposure to insolvency risks.
A significant concern emerged around the possibility of THORChain being unable to meet its financial obligations in the event that all loans and saver positions were closed and repaid simultaneously. The risk of insolvency is compounded by a market downturn that could cause a sharp decline in the value of RUNE, THORChain’s native token, which is used to settle lending positions.
The network has historically met its lending obligations by minting RUNE and selling it into liquidity pools. However, with growing concerns about its solvency, the community had turned off new deposits last year. Some members now claim that THORChain faces liabilities approaching $200 million, with $107 million of that amount sitting in liquidity pools that could be withdrawn or sold by liquidity providers (LPs) or RUNE holders in times of panic.
.@THORChain is insolvent
— TCB (@1984_is_today) January 24, 2025
In the event of any large debt redemption and/or savers & synths deleveraging, it is certain that TC cannot meet its bitcoin and eth denominated obligations.
Validators decided to pause the network while they vote a restructuring plan
🔽🧵
Despite these challenges, THORChain’s core service—cross-chain swaps—remains unaffected. Users can still access liquidity pools and perform swaps without any disruptions. However, the pause in withdrawals raises questions about the long-term stability of the protocol and its ability to navigate the current financial uncertainty.
As the situation unfolds, THORChain’s community and stakeholders will be closely monitoring developments to gauge the platform’s recovery strategy and its impact on the broader decentralized finance (DeFi) ecosystem.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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