THORChain, known for its decentralized finance protocol, has encountered severe liquidity issues, leading to a temporary halt in Bitcoin and Ethereum withdrawals. This move resulted in a substantial 30% drop in the value of its token RUNE.
Withdrawal Suspension and Its Reasons
Network node operators of THORChain proposed and executed a 90-day withdrawal pause. This action is aimed at preventing a potential liquidity crisis and developing a plan to address outstanding debts. The protocol's lending program supports only BTC and ETH, but their savings vaults have a broader range of assets.
Risks Associated with RUNE Token
The protocol faces bankruptcy risks if all loan and savings positions are closed simultaneously, particularly if a sharp drop in the market value of RUNE occurs. The protocol meets its lending obligations by minting and selling RUNE into liquidity pools, a mechanism that has raised concerns previously. Some community members estimate THORChain's liabilities at around $200 million, with $107 million in liquidity pools. Panic actions by liquidity providers or RUNE holders could further stress the protocol's stability.
Current State and Future Steps
Despite the challenges, THORChain's core service of cross-chain swaps remains unaffected. Users can continue exchanging and benefiting from liquidity pools without interruptions.
THORChain continues its operations amid the financial difficulties it faces, despite the temporary suspension. Protocol managers are now focused on restoring stability and devising strategies to prevent further crises.