Amid a liquidity crisis, THORChain has taken drastic measures by suspending withdrawals on its Lending and Savers lending and savings services.
THORChain, a leading decentralized finance (DeFi) protocol, has announced the suspension of withdrawals on its lending and savings services, “Lending” and “Savers,” amid a liquidity crisis that is affecting its financial stability.
The drastic decision seeks to give the protocol time to develop a restructuring plan that will allow it to settle a debt estimated at around $200 million. While the platform maintains its main cross-chain exchange functions, THORSwap, operational, the suspension of withdrawals in Lending and Savers has generated uncertainty in the community, unleashing debates and analysis about the future of this important player in the DeFi ecosystem.
What's going on at THORChain?
According to statements by John-Paul Thorbjornsen, founder of the protocol, and other experts, the Lending and Savers programs, which were designed to offer lending services and savings accounts on THORChain, accumulated significant liabilities during their operation. The debts reportedly amount to $97 million in loans and $102 million in savings and synthetic assets, far exceeding the protocol’s available liquidity, estimated at around $107 million.
Thorbjornsen explained that this discrepancy has created a significant imbalance, putting THORChain’s ability to service withdrawal requests from its users at risk.
Faced with the looming threat of insolvency, THORChain opted to suspend withdrawals as a preventative measure. This decision, although radical, has been considered by many experts in the industry as necessary to avoid a catastrophic collapse of the protocol.
The temporary halt of withdrawals provides the community and developers with an opportunity to thoroughly analyze the situation, assess the magnitude of losses, and design a viable restructuring plan.
THORSwap is still up and running
The suspension does not affect all of THORChain’s features. In fact, Thorbjornsen emphasized that THORSwap, the protocol’s cross-chain swap service, remains operational. However, the uncertainty generated by the asset freeze in Lending and Savers has impacted user confidence, reflected in a significant reduction in the total value locked (TVL) on the platform and instability in the price of RUNE.
On the one hand, data from DeFi Llama shows that THORChain’s TVL has decreased by nearly $120 million since the beginning of this month. On the other hand, CoinMarketCap shows that the price of RUNE has dropped by 26% over the past 7 days, trading around $2,64 per unit at press time.
Source: CoinMarketCap
Despite the situation facing the protocol, various analysts and community members have expressed their support for the strategy of a restructuring plan.
ShapeShift CEO Erik Voorhees, for example, called Lending and Savers experimental initiatives with a high risk component, acknowledging the difficulty of predicting when users would massively withdraw their funds.
Voorhees also highlighted that Thorchain “It is one of the most profitable protocols in the ecosystem, and there are likely multiple reasonable paths to a good resolution.”
Thus, it seems that THORChain has the support of the crypto community to ensure its financial viability and regain trust. X user @BitcoinInfantry also said that the protocol is one of “the rare profitable ones running today” in the DeFi ecosystem, which continue to provide real-world utility.
While taking drastic measures like suspending withdrawals is understandable, the protocol developer said they have 90 days from now to come up with an effective plan that not only addresses the immediate issues but also sets a sustainable framework for their future.
