Crypto Chaos: THORChain’s Hilarious Attempt to Avoid Bankruptcy!

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In a rather theatrical turn of events, THORChain, that decentralized crosschain liquidity protocol we all love to gossip about, has decided to hit the pause button on its lending and savers programs for Bitcoin and Ether. Yes, you heard it right! 🎭

This audacious decision, which was given the nod by network node operators on the 23rd of January, aims to stave off an impending insolvency crisis and to, quite frankly, tidy up the protocol’s debts. Because who doesn’t love a good financial spring cleaning? đŸ§č

Orion (9r), a pseudonymous developer at THORChain, took to Discord to explain this rather dramatic pause in ThorFi redemptions:

“To safeguard LPs and maintain network stability, we are recommending nodes vote to temporarily suspend ThorFi redemptions,” Orion wrote, as if he were announcing a royal decree. The developer assured us that swaps would continue to operate normally, because why not keep the show going? The 90-day hiatus will allow the community to concoct a plan to stabilize operations. đŸ”

What is THORChain?

THORChain, in all its glory, facilitates permissionless crosschain swaps, allowing users to trade assets like Bitcoin (BTC), Ether (ETH), and other delightful cryptocurrencies without the meddling of centralized intermediaries. It’s like a free-for-all party where everyone brings their own drinks! đŸč

Its decentralized exchange is supported by liquidity pools (LPs), where users deposit cryptocurrencies to earn fees. Think of it as a community potluck, but with a lot more volatility and a lot less potato salad.

THORChain’s native token, THORChain (RUNE), acts as the economic backbone of this wild ride, ensuring liquidity and enabling the settlement of trades. Meanwhile, THORFi represents THORChain’s experimental, decentralized finance (DeFi) layer, offering features like lending and savers programs. It’s like the mad scientist of the crypto world! đŸ§Ș

The lending and savers programs allowed users to deposit BTC and ETH to earn yields or take out loans. However, the program now 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 find itself in a rather sticky situation, resulting in liquidation. Yikes! đŸ˜±

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. It’s like a game of musical chairs, but with a lot more at stake! đŸŽ¶

Reactions from the community

The decision has sparked quite the chatter within the crypto community, with some expressing concerns about the protocol’s financial health, while others remain optimistic about its recovery potential. It’s like a soap opera, really! đŸ“ș

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.” Because nothing says “we’re in trouble” like a casual 90-day deadline! ⏳

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. Sounds like a thrilling race, doesn’t it? đŸƒâ€â™‚ïžđŸ’š

TCB compared the situation to a “Chapter 11 bankruptcy” and proposed restructuring as the best course of action. Because who doesn’t love a good restructuring plan? 📊

“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.” It’s like a choose-your-own-adventure book, but with real money! 📚

Haseeb Qureshi, managing partner at Dragonfly Capital

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2025-01-24 14:28