THORChain officially passed Proposal6, launching the TCY token to convert nearly $200 million in debt into revenue sharing rights for the network for creditors.
THORChain converts debt into TCY tokens to resolve the financial crisis
As Coin68 reported, on January 24, THORChain officially suspended the services of THORFi, including lending and saving, after independent blockchain researcher TCB (@1984_is_today) announced the shocking news that the protocol was facing insolvency. According to the report, as of that time, THORChain had accumulated a debt of up to $200 million, while the total assets held were only $107 million in liquidity pools (LP), putting the ecosystem at risk of collapse.
The decision to freeze services on THORFi immediately created a domino effect across the network as:
- 31 validators left the system, reducing the decentralization of the protocol.
- $100 million in liquidity was withdrawn from the protocol, putting significant pressure on the market.
- The RUNE price plummeted, from $3 to $1.11, the lowest level in over a year.
THORChain's TVL has decreased by more than half since December 2024. Source: DefiLlama (February 3, 2025)
Subsequently, the THORChain community put forward 8 restructuring proposals to address the financial crisis the protocol was facing, of which "Proposal6" proposed by AaluxxMyth from Maya Protocol has been officially approved.
THORChain Community Update
— THORChain (@THORChain) February 2, 2025
Thank you to the community members, Node Operators, and builders who have remained committed throughout this critical moment for the network. Your dedication and contributions have been invaluable in shaping the path forward and ensuring THORChain's…
The key points in Proposal6:
- Convert nearly $200 million in bad debt into equity token TCY, allowing creditors to have a share of protocol revenue.
- Lenders and savers will receive 1 TCY for every $1 lost, instead of being refunded in the original assets like BTC or ETH.
- TCY holders will receive 10% of THORChain's revenue permanently, ensuring long-term benefits for those affected.
- THORChain will create a RUNE/TCY liquidity pool worth $500,000 at a rate of 0.1 USD per TCY, allowing TCY holders to trade the token on the market.
This means that instead of refunding the original assets, THORChain is converting the debt into a form of investment asset, allowing users to decide whether to hold or sell the TCY token based on market demand.
TCB (@1984_is_today) also voiced support for Proposal 6, as this proposal not only helps reallocate capital, but also allows the market to more effectively price the revenue growth of the ecosystem.
At the core every @THORChain proposal was trying to redistribute revenues in a different way
— TCB (@1984_is_today) February 2, 2025
I supported prop 6 because it was the best redistribution mechanism, it was allowing speculators to price in growth of revenues into it at higher pace
🔽
However, TCB said that the core issue THORChain faces is not only the reallocation of revenue, but also the need to increase revenue and optimize the economic model. If the focus is only on redistributing the current cash flow based on December 2024 revenue, the full repayment of the debt could take 27 years, an unrealistic figure.
When trying to project the, I realized that simply redistributing the money wasn't enough, every models simply adds up to a 27 years repayment schedule based on dec 2024 revenues
— TCB (@1984_is_today) February 2, 2025
Once implemented, the job is to grow the revenue and profitability of the protocol
Therefore, this person suggested that THORChain's next goal should be to increase revenue and optimize operating costs. First, THORChain needs to transition to an economic model similar to a CEX, where users have to pay fees to use the liquidity, instead of the protocol paying to attract liquidity.
It needs to get to a point where it acts like a CEX. The liquidity on a CEX is always paying to use it.
— TCB (@1984_is_today) February 2, 2025
It needs to be a real business where revenues and expenses look like this :
To achieve this, THORChain needs to change some core mechanisms:
- No more passive liquidity rewards, only using liquidity owned by the protocol, to save costs.
- Increase transaction processing speed by 6 times for smaller transactions.
- Support active liquidity management (V3 Active Liquidity Management), allowing applications to build optimization tools for users.
- Modify the block reward mechanism, eliminating automatic token sales to avoid putting pressure on the market.
- Adjust flexible transaction fees, ensuring reasonable fees to attract more transactions.
In addition, all revenue from the protocol's operations will be allocated as follows:
- 10% of revenue for the development team
- 30% of revenue for security and validators
- 10% of revenue to pay off debt for TCY holders
- 50% of remaining revenue will be used to buy back and burn tokens, creating long-term value for the ecosystem
This model will help THORChain maintain stability and attractiveness for both investors and real users, while ensuring the repayment of the $200 million debt much faster than previous models.
At the moment, the RUNE price is fluctuating around $1.2, recording an 8.3% decrease in the last 24 hours after a deep correction across the crypto market. The main reason is the escalating trade tensions, as US President Donald Trump has sparked a new trade war.
RUNE price movement in the last 24 hours, screenshot taken on CoinGecko at 04:20 PM on February 3, 2025
Compiled by Coin68
