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Roughly $111 million worth of digital assets has been borrowed through Thorchain’s protocol, and $98 million worth of crypto is currently locked in savers vaults. That amount from depositors includes $57 million worth of Bitcoin and $16 million worth of Ethereum, per a Thorchain dashboard.
The problem is anyone who currently has money in ThorFi can’t get it out, as the network faces a $200 million insolvency. Thorchain network operators have frozen these funds in an attempt to prevent a disaster scenario for the DeFi protocol. Dragonfly Capital managing partner likened the move to a “bankruptcy freeze,” calling it the “first on-chain restructuring.”
The decision was established “via nodes,” according to Thorchain founder JP Thorbjornsen, who said on X that the move gave Thorchain’s community 90 days to come up with a restructuring plan, while instructing “everyone [to] chill.”
THORFi paused via nodes.
The good news
- 90 days to restructure with help of @1984_is_today @tbr90 and @ninerealms_cap
- the protocol itself still works fine
- the protocol makes a tonne of maney and can service the debt - once restructuredFrom here
- everyone chill. Folks…— JP.THOR | ACEL (@jpthor) January 24, 2025
As a decentralized finance, or DeFi, protocol, Thorchain allows users to swap assets across different networks in a permissionless way—mirroring the services of a centralized exchange while never taking full control of users’ funds.
In 2022, THORChain rolled out its savers program, billed in a blog post as a way for DeFi users to “earn in-kind yield” in a similar way to Thorchain’s liquidity providers.
According to the pseudonymous Thorchain community member TCB, the network is “insolvent.” In the event that users tried to redeem $199 million worth of liabilities on Thorchain, the network could not meet its obligations sustainably, he said on X.
.@THORChain is insolvent
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
🔽🧵
— TCB (@1984_is_today) January 24, 2025
The network currently meets its lending obligations by minting $RUNE, the network’s native asset, and then selling that into liquidity pools on Thorchain, TCB said. That’s created a reflexive cycle, where redemptions make Thorchain’s obligations worse, even though $RUNE is burned when users first engage with the savers program.
Recently, redemptions from savers and lenders have inflated $RUNE’s supply while pushing down its price. While 6.6 million $RUNE has been burned so far this month, 16 million has been minted meanwhile, according to THORCharts.
If Thorchain’s community decides to leave the protocol as is, TCB said a handful of people will be able to exit THORFi’s services first, while “$RUNE will go on a downward spiral and THORChain will be destroyed.”
As of this writing, the price of $RUNE had fallen 29% Friday to $2.08, hitting its lowest price since October 2023. At its peak in May 2021, the $RUNE was valued at $20.87.
THORChain supporters, including ShapeShift CEO and Bitcoin OG Erik Vorhees, believe the protocol is still worth saving despite bad debt weighing on $RUNE’s price.
On X, Vorhees described Thorchain as one of “the most valuable protocols in the ecosystem.” According to DefiLlama, it has reaped $47 million in lifetime fees.