ThorChain struggles following executive decision
A combination of inflationary pressures, rising liabilities and the potential collapse of critical systems required a strategy reevaluation
Muhammed AKAN/Shutterstock modified by Blockworks
ThorChain founder JP Thorbjornsen and the development team have decided to pause the ThorFi Savers and Lending programs for the next 12 months. The decision, announced Thursday, comes after consultations with key community members, devs and node operators, according to the project’s Discord.
Thorchain is a decentralized liquidity protocol that enables cross-chain asset swaps without the need for wrapped tokens or centralized exchanges. It allows users to trade native assets like Bitcoin, Ethereum and others directly on the platform, using its native token, RUNE, to facilitate transactions and secure liquidity pools. But the protocol is undergoing a major restructuring to make it more secure and easier to understand.
THORFi, a complex component of the ecosystem, has been identified as a primary source of volatility, particularly due to un-throttled redemptions that are driving away new participants and hindering progress on the 2025 roadmap, developers say. By pausing these features, the team aims to ensure that the protocol is ready to scale efficiently.
Read more: Code vulnerability puts damper on RUNE’s wild run
Under pressure
Inflation of RUNE’s circulating supply has contributed directly to the token’s poor price action. Several mechanisms are behind this inflation, including block rewards distributed to validators. As with many chains, RUNE is minted to reward participants, thus diluting its value. There is a growing consensus that these rewards should be reduced, but the specifics and timing of such changes are a matter of debate.
Beyond block rewards, other mechanisms such as Savers and Lending programs have added additional pressure. The Savers program, which was designed to create buy pressure for RUNE, has instead exacerbated the situation by creating substantial sell pressure when users withdraw their deposits.
The dynamic is simple: When users enter Savers, they must purchase RUNE, but when they exit, they sell it. This cycle becomes problematic when RUNE is underperforming relative to bitcoin. As users exit at lower prices, they trigger further declines in RUNE’s value, creating a feedback loop.
Lending has similarly introduced inflationary effects. While it has already been shuttered, its lingering impact continues to affect the RUNE price. Loans and collateral, primarily backed by BTC and ETH, have created liabilities that are hard to repay as the value of RUNE declines. The situation is compounded by the fact that, due to the current state of the market, more RUNE is being minted to cover obligations, further diluting the token.
Sunset of Savers
In light of these concerns, community members have called for immediate action to address the protocol’s structural weaknesses. The most immediate of these is the sunset of the Savers program, which continues to exert downward pressure on RUNE’s price.
The plan put forward includes a 72-hour period for dissent and discussion, allowing the community to voice concerns and potentially campaign for an unwinding of the decision. If no changes occur, a six-month “timeout” will follow, during which no further discussions or economic changes will be entertained. Developers will shift focus entirely to the app layer, optimizing bandwidth and accelerating development without the overhang of THORFi-related distractions.
After six months, the idea is to tokenize Lending and Saver positions, offering holders early liquidity on a peer-to-peer market. By the 12-month mark, a restructuring plan will be presented to provide liquidity for legacy THORFi holders, potentially introducing a System Income Tax that would remain until all positions are cleared.
Some have called for a more radical solution: Force the closure of all outstanding loans. On X, ThorTrades expressed his concern on the sunset plan.
“If BTC trades at $75-85k, Rune will trade under $3 likely. Best to use this bad moment in the market to get rid of something bad (loans),” he wrote, arguing this aggressive action should be taken immediately. “The right moment to force loans to close was above $6 but the second best moment might be now.”
So it seems Thorchain is at a crossroads. The combination of underperforming RUNE, inflated supply, and growing liabilities threatens to undermine the protocol’s long-term viability. It’s clear that some immediate action is needed to halt this spiral. The protocol has already made strides in decentralization and cross-chain liquidity, but to ensure its survival, the Thorchain team looks to confront these internal challenges head-on.
The question now is whether node operators will play ball, and what comes of brewing community backlash. As JP put it, “prepare your pitchforks,” and be prepared to make the tough calls to save the protocol.
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