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The cross-chain trading protocol THORChain is going through a serious crisis as it carries over $200 million in debts, causing the RUNE Token to plummet significantly, reaching its lowest level since 2020. Investors have lost confidence, and a wave of liquidation is pushing the THORChain ecosystem into a dangerous situation.
THORChain is a cross-chain trading platform that allows users to exchange native assets across different Blockchains without the need for an intermediary. The system operates as an independent Layer-1 DEX built on the Cosmos SDK, using the Automated Market Maker (AMM) protocol to provide liquidity and facilitate decentralized transactions.
Massive Bitcoin, Ethereum Debts Push THORChain into Crisis
Since 1/2024, THORChain has accumulated a large amount of Bitcoin (BTC) and Ethereum (ETH) debt through lending and savings programs. However, the expansion of borrowing and lending without a strong enough collateral mechanism has caused the platform to fall into a liquidity crisis, as the collateral assets are insufficient to pay off the maturing debts.
To prevent a collapse, the THORChain team decided to temporarily suspend the withdrawal function for 90 days. However, this decision backfired, as investors panicked and began dumping RUNE to preserve their capital, causing the token's value to plummet further.
Lending Model Based on RUNE Creates Massive Selling Pressure
One of the core issues that has led to THORChain's crisis is the lending model that is entirely based on RUNE. The system's mechanism requires creating more RUNE to repay debts each time a loan is settled. This has led to a rapid increase in RUNE supply, causing severe inflation and a significant devaluation of the token compared to assets with limited supply, such as Bitcoin and Ethereum.
The consequence is that the more people repay their loans, the lower the RUNE price becomes, creating a negative feedback loop that undermines market confidence. As the value of RUNE becomes less attractive, large investors have also started to withdraw, further exacerbating the crisis.
Bankruptcy Rumors: Validators Exiting Network, Whales Dumping
According to internal sources, THORChain may declare bankruptcy on Monday, as the system no longer has enough liquidity to sustain its operations. Currently, many validators are in the process of voting to exit the network, which could completely disrupt the system's functionality.
Additionally, on-chain data shows that many whales and insiders have dumped their RUNE holdings, further driving down the token's value. If the bankruptcy rumors become a reality, this could be a significant shock to the entire THORChain ecosystem and the DeFi market in general.
The RUNE token has already dropped more than 60% in the past week, with a market capitalization of only $500 million.
