Two days ago, the Etabytes Thorchain’s lending service He currently does not have enough Bitcoin to repay his creditors.
At the time of post, the total amount of Bitcoins repaid to depositors was 1,604, while the loan pool held only 592 Bitcoins.
We need to raise awareness of how bad the state of Thorchain lending is right now, posing a potential risk to the protocol.
As things stand, at current mark-to-market rates for RUNE, the full loan closing would amount to RUNE 24 million.
BTC collateralized 1,604,18,258… pic.twitter.com/OykZbMQCdx
– AteBytes (@ate_bites) 8 January 2025
As Lava founder Shahezan Maredia explained in a post on X, when you borrow on Thorchain, they sell the Bitcoin you hold as collateral for their own token, Rune. When you repay your loan, they sell the RUNE for Bitcoin to give you back your collateral.
I predicted Thorchain’s collapse in 2023 when they launched their "Borrow" Convenience, and it’s happening now. People never learn this lesson: in crypto any system that can fail will fail.
When you borrow on Thorchain, they will sell your BTC collateral for their…
– Shehjan (@MarediaShehjan) 10 January 2025
The actual process of how this works is a bit more complicated and is detailed on Thorchain’s website.
Check out the screenshot from the website below:
The primary issue in this scenario is that half of the value borrowed in US dollar denominations was borrowed when Bitcoin traded at prices significantly lower than the prices at which Bitcoin trades today, according to Atabytes.
This means that Thorchain will need more than 24 million Runes (as of January 8) to meet its current demands. While it will be only about 8% Circulating supply of RUNEThis will cause the price of the asset to decrease, giving Thorchain even less purchasing power as they try to buy back Bitcoins on behalf of their creditors.
If traders begin shorting RUNE in addition, Thorchain’s ability to purchase the amount of Bitcoin needed to cash in on its creditors will be further reduced.
This could lead to something similar to the Terra/Luna death spiral seen in 2022.
That said, Eric Voorhees, a key backer of the project, shared that Thorchain’s lending service is operating as intended and poses no potential threats:
Thorchain continues to operate as designed.
Yes, debt redemptions put downward pressure on the price of RUNE, but the scale is not dangerous.
If you’re worried, just pay off your loan.
– Eric Voorhees (@ErikVoorhees) 10 January 2025
A lead developer for Thorchain who goes by the name of Nine Realms on X also made the case that Thorchain is resilient:
1/Addressing community concerns
There has been a lot of discussion recently about the state of the network and outstanding debt protocol liabilities.
Let’s shed light on the facts of what’s really going on and why we’re confident in Thorchain’s resilience.
– Nine Realms (@ninerealms_cap) 10 January 2025
With all this said, if you are still feeling hesitant about lending your Bitcoin to Thorchain as collateral for a loan, you may want to cash in. If I were using the service, I would.
This article is a TakeThe opinions expressed are solely those of the author and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
