THORChain Freezes Key Services for 90 Days Amid

THORChain Freezes Key Services

THORChain has paused specific Bitcoin and Ethereum programs for 90 days after being hit with $199m in total liabilities. The pause, supported by node operators, is for loan based products and yield generating services. This is part of a bigger plan to tackle the liabilities across borrowing and synthetic assets which people are blaming on excessive leverage and underestimating market risks.

Community members are pointing to a breakdown of the debt, $97m is tied to borrowing programs and $102m to synthetic assets and depositor claims. Some are saying if people redeem their positions quickly the network might not have enough backing to cover those redemptions. This is why the pause is in place to stop people from withdrawing funds before a long term solution can be put in place.

There are several proposals in the community, including one to permanently lock current lending balances, tokenized claims for depositors and block any one person from getting too much control. Another proposal is to change how the protocol handles outbound transactions but this requires a majority of node operators to approve. The protocol has 116 active validators and each of these proposals needs 78 votes to pass. As of the last update two have over 50 votes and one is one vote behind.

A pseudonymous THORChain developer named Orion (9r), stated, “To safeguard LPs and maintain network stability, we are recommending nodes vote to temporarily suspend ThorFi redemptions.”

Thorcoin Crash
Credit: Thorfi Discord

RUNE price has been volatile since the restructuring news. It dropped 30% in the first wave of concern and went as low as $2 which some traders haven’t seen in a while. Then it rebounded 10% but uncertainty remains until the plan is settled. The risk of further decline is that big holders may still liquidate if they think the protocol’s changes won’t work.

According to people who have looked at the data the protocol generated debt when Bitcoin and Ether was low. Borrowers took advantage of that and put pressure on the RUNE based liquidity pools. Unlike many other lending platforms this protocol didn’t have an automated liquidation mechanism when the underlying collateral value fell. Without forced closures the debt kept growing and the current market has added to the burden.

Cross chain swapping is still active despite the pause on the debt related programs. Regular transactions for Bitcoin, Ethereum and other assets are still happening as normal but any redemptions from the paused services will be frozen until the 90 day window is up. The idea is to give the developers, node operators and lenders time to come up with a plan to protect the liquidity providers and reduce the risk of another crisis.

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