Two days ago, the atebites X account pointed this out THORchain’s lending service Currently there is nowhere near Bitcoin to pay off its creditors.
As of the time of the post, the total amount of bitcoins to repay depositors was 1,604, while the lending pool had only 592 bitcoins.
We need to raise awareness of how bad the shape of blockchain lending is right now, which is a potential threat to the protocol.
As it stands, at current mark-to-market rates for RUNE, closing the entire loan would amount to 24 million RUNE.
1,604 in BTC assets, 18,258… pic.twitter.com/OykZbMQCdx
— atebites (@ate_bites) January 8, 2025
as Shahzan Meredia, founder of Lava As explained in a post on X, when you borrow on THORchain, they sell the bitcoins you put up as collateral for your own token, RUNE. When you pay off your loan, they sell the RUNE for Bitcoin to give you back your collateral.
I predicted the collapse of Thorchain in 2023 when they launched theirs "loan" feature, and it’s happening now. The lesson people never seem to learn: any system in crypto that can fail will fail.
When you borrow on Thorchain, they will sell your BTC assets for their…
— Shehzan (@MarediaShehzan) January 10, 2025
The actual mechanics of how this works are a bit more complicated and are detailed on THORChain’s website.
Check out the screenshots from the website below:
The main issue in this scenario is that half of the value borrowed in US dollar values was borrowed when Bitcoin traded at significantly lower prices than what Bitcoin trades at today. According to Atbites.
This means that for THORchain to meet its current demands, it will need to mint upwards of 24 million RUNE (as of January 8). While it will be only about 8% Circulating supply of RUNEThis will decrease the value of the asset, giving THORchain less purchasing power as they try to buy back bitcoins on behalf of their creditors.
If traders start shorting RUNE on top of this, THORChain’s ability to buy enough Bitcoin to pay off its creditors will be further reduced.
This can lead to something similar Terra/Luna Death Circle We saw in 2022.
Additionally, Eric Voorhees, the project’s lead backer, shared that THORChain’s lending service is working as intended and that there are no threats:
Thorchen continues to function as designed.
Yes, debt redemption creates downward pressure on the RUNE price, but the scale is not dangerous.
If you are worried, just pay off your debt.
— Eric Voorhees (@Eric Voorhees) January 10, 2025
A core developer for THORchain known as Nine Realms on X also made the case that THORchain is resilient:
1/ Addressing community concerns
There has been much discussion recently about the status of the network and the outstanding lending protocol liability.
Let’s dive into the facts to shed light on what’s really going on and why we’re confident in THORChain’s resilience.
– Nine Realms (@ninerealms_cap) January 10, 2025
With all that said, if you still feel uneasy about giving THORChain your Bitcoin as collateral for a loan, you might want to redeem it. If I was using the service, I would.
This article is a take. The views expressed are solely those of the author and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
