THORChain, a decentralized crosschain liquidity protocol, has temporarily suspended its lending and savers programs for Bitcoin and Ether.
The decision, approved by network node operators on Jan. 23, aimed to prevent an insolvency crisis and restructure the protocol’s debts.
Orion (9r), a pseudonymous developer at THORChain, explained the decision to pause ThorFi redemptions temporarily:
“To safeguard LPs and maintain network stability, we are recommending nodes vote to temporarily suspend ThorFi redemptions,” Orion wrote in a Discord message. The developer added that swaps would continue operating normally. The 90-day pause will allow the community to develop a plan to stabilize operations.
Source: ThorFi Discord server
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What is THORChain?
THORChain facilitates permissionless crosschain swaps, allowing users to trade assets like Bitcoin (BTC), Ether (ETH) and others without centralized intermediaries. Its decentralized exchange is supported by liquidity pools (LPs), where users deposit cryptocurrencies to earn fees.
THORChain’s native token, THORChain (RUNE), acts as the protocol’s economic backbone, ensuring liquidity and enabling the settlement of trades.
THORFi, on the other hand, represents THORChain’s experimental, decentralized finance (DeFi) layer, offering features like lending and savers programs.
The lending and savers programs allowed users to deposit BTC and ETH to earn yields or take out loans. The program faces liabilities of around $200 million, primarily in BTC and ETH. If users were to simultaneously redeem their loans and savings positions, the protocol could fail to meet its obligations, resulting in liquidation.
In DeFi, liquidation occurs when a borrower’s collateral value falls below the required threshold due to a drop in the asset’s price or an increase in debt. This process ensures lenders are repaid and the system remains solvent. Liquidation is triggered automatically by smart contracts, often leading to asset sell-offs.
Reactions from the community
The decision has sparked reactions within the crypto community, with some expressing concerns about the protocol’s financial health, while others remain optimistic about its recovery potential.
JP.THOR, a community member, stated:
“The protocol makes a ton of money and can service the debt — once restructured. Everyone chill. Folks have 90 days to devise a plan.”
Meanwhile, pseudonymous user TCB outlined THORChain’s liabilities, including $97 million in lending and $102 million in savers. ”If nothing is done, it will be a race to the exit, and the entire protocol’s value will vanish,” TCB posted on X.
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TCB compared the situation to a “Chapter 11 bankruptcy” and proposed restructuring as the best course of action.
“Option 1: $75m of people who exit first get made whole, $1.5b is wiped out of the map. Option 2 : The value of the network is preserved, and everyone works together to grow it to make that $200m of capital whole.”
Haseeb Qureshi, managing partner at Dragonfly Capital, questioned whether this was the first onchain restructuring.
Source: Haseeb Qureshi
Eric Voorhees, founder of cryptocurrency exchange ShapeShift, acknowledged the necessity of the node operators’ decision to freeze lending and saver withdrawals, noting that deposits for these programs had been turned off a year ago due to rising concerns.
“At this point, it’s clear these designs failed, they were too risky,” Voorhees said, describing lending and savers as experimental features that became a burden on the protocol.
As of writing, the protocol’s core DEX functionality remained operational and liquidity providers could continue deposits and withdrawals without interruption.
RUNE’s price dropped by 32% to $2.10 following the announcement.
Cointelegraph reached out to THORchain but did not receive a response by publication.
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