Thorchain (RUNE)

THORChain’s $200 Million Debt Crisis Mirrors Terra Luna Collapse, Warns Osmosis Co-Founder Sunny Aggarwal

THORChain, a decentralized cross-chain liquidity protocol, is in the midst of a financial crisis, with its network operations temporarily paused due to a massive debt crisis. The protocol faces nearly $200 million in liabilities, triggering concerns about its long-term viability and drawing comparisons to the 2022 collapse of Terra/Luna.

Sunny Aggarwal, Co-Founder of Osmosis, a decentralized exchange in the Cosmos Hub ecosystem, recently commented on the situation, highlighting the striking similarities between THORChain’s struggles and the Terra/Luna implosion. According to Aggarwal, “The situation unfolding with THORChain is eerily similar to what happened with Terra/Luna in 2022, where the protocol’s solvency was too heavily dependent on the price performance of the native token.”

At the core of THORChain’s financial woes is its design, which places significant reliance on the performance of its native token, RUNE. The protocol is intrinsically “long” on RUNE, meaning its solvency is heavily tied to RUNE’s ability to outperform other major assets, like Bitcoin (BTC) and Ethereum (ETH), which are used as collateral. However, recent market trends have not been favorable for RUNE, exacerbating the protocol’s financial instability.

THORChain now finds itself with $97 million in borrowing liabilities and an additional $102 million in depositor and synthetic asset liabilities. The resulting pressure has pushed the platform to the brink of bankruptcy, forcing it to take drastic measures. In an attempt to stabilize the system, THORChain has paused its lending and savings programs, including BTC and ETH withdrawals. The protocol has launched a 90-day restructuring plan aimed at mitigating risks and restoring solvency.

As the situation develops, the crypto community remains cautious, watching for signs of recovery or further decline. THORChain’s struggles underscore the challenges faced by decentralized protocols that depend on native token performance for liquidity and solvency.

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.

Also Read: Thorchain Faces Insolvency Fears as Financial Instability Hits RUNE Price Amid Crypto Market Turmoil

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