On January 24, Thorchain (RUNE) recorded a huge price drop of about 26%, moving from $3 to around $2. Market data shows that the token is trading at $2.18, down 30% in 24 hours.
The sudden price slump has worried many netizens, and many are raising concerns about an impending Thorchain insolvency.
Amid these claims, the protocol has halted its lending and saving services.
Thorchain Insolvency Claims
Thorchain community member TCB on X took to his page to declare that “Thorchain is insolvent.”
He explained how the project cannot meet up with its Bitcoin (BTC) and Ethereum (ETH) obligations, especially in the event of “any large debt redemption and/or savers & synths deleveraging.”
This situation made validators find reasons to suspend the network while they vote on a restructuring plan.
TCB spelled Thorchains total liabilities, which run to $200 million, between its lending and savers programs.
$107 million of (non-locked) liquidity back this liability. His thread explained the extent of the system‘s reliance on minting the project’s token, RUNE.
A comparison was established between RUNE and Terras UST and LUNA for more perspective. Before now, there have been growing concerns about the protocol.
Thorchain eventually admitted that the system had become “so complicated that only a handful of people fully understands how the leveraged feature & liquidity works with each other and affects the underlying assets.”
Thorchain Price Outlook
At the current level, RUNE does not reflect the confidence analysts and market observers had in it a while ago.
About five months ago, @cryptojack on X shared his optimism with followers with an accompanying bullish chart. The analyst highlighted the possibility of a 4x gain for the digital currency.
As of writing, RUNE was trading at around $3.7 at the time. A 4x gain would mean the coin will reach as high as $14.
Confidence at the time stemmed primarily from the fundamental factors and efforts made by the development team in the second quarter of 2024.
Should the project sort out its insolvency issue, RUNE may find a balance and chart a recovery path. Some other events, like key partnerships, could catalyze price gains.
Lessons for Over-leveraged Projects
Thorchain founder JP agrees that pausing lending and saving services is the best move for the project.
Thorchain can avoid a potential “death spiral” of depositors racing for the exit, he stated.
The liabilities will be tokenized for the 90-day restructuring period, and 10% of protocol fees will be used to accumulate RUNE to rebuild the reserve.
JP described this approach as “rip the bandaid off,” confident that “all loans [will be] honored over time. No big deal.”
In the opinion of a couple of community members, this plan is worthy of applause.
They formed their opinions on the basis that the protocols lending portion is relatively small compared to the “very profitable” DEX operations.
Despite this, there is another group of community members who are not convinced.
Unfortunately, Thorchain has to go through this phase now, but other over-leveraged projects may learn the projects situation.