Is THORChain the Next Terra Luna? Find Out Why You Should Be Worried! 😱

In the grand theater of cryptocurrency, where fortunes rise and fall like the tides, Sunny Aggarwal, the illustrious Co-Founder of Osmosis, has drawn a rather unsettling parallel. He suggests that the liquidity woes of THORChain echo the tragic symphony of the 2022 Terra Luna collapse. 🎭

THORChain, that ambitious decentralized cross-chain liquidity protocol, has hit the pause button on its network operations, all thanks to a staggering debt crisis that looms like a dark cloud—nearly $200 million in the red! 💸

As the curtain rises on this drama, Aggarwal, speaking to crypto.news, remarked, “The unfolding saga of THORChain is eerily reminiscent of the Terra/Luna implosion of 2022, where the protocol’s solvency was as fragile as a soap bubble, too reliant on the whims of its native token’s price.” 🧼

Ah, THORChain’s design! It’s like a rollercoaster ride that’s reflexively long on its native token, RUNE. The protocol’s very existence hinges on RUNE’s ability to outshine the likes of Bitcoin (BTC) and Ethereum (ETH), which are used as collateral. Talk about putting all your eggs in one basket! 🥚

But alas, recent market trends have not been kind to RUNE, leading to a financial instability that could make even the most stoic investor break into a cold sweat. 😰

Currently, THORChain finds itself grappling with $97 million in borrowing liabilities and $102 million in depositor and synthetic asset liabilities, teetering on the edge of bankruptcy like a tightrope walker without a safety net. 🎪

In a desperate bid to stave off disaster, THORChain has suspended its lending and savings programs, particularly affecting BTC and ETH withdrawals. This is all part of a 90-day restructuring plan—because who doesn’t love a good makeover? 💅

.@THORChain is insolvent
In the event of any large debt redemption and/or savers & synths deleveraging, it is certain that TC cannot meet its bitcoin and eth denominated obligations.
Validators decided to pause the network while they vote a restructuring plan
🔽🧵
— TCB (@1984_is_today) January 24, 2025

Terra Luna collapse

Ah, the infamous Terra/Luna collapse! A tale of woe where the protocol’s dependence on its native token’s value led to a catastrophic failure. In May 2022, Terra, once the third-largest cryptocurrency ecosystem, crumbled in a mere three days, erasing $50 billion in valuation. Talk about a dramatic exit! 🎭

Aggarwal further mused, “It’s uncertain whether lenders can be fully compensated. Some have suggested that the shortfall could be covered by protocol fees collected over time. But this overlooks a crucial point: the bulk of THORChain’s liquidity comes from its lending and savers platform, ThorFi. So, treating THORChain and ThorFi as separate entities is like trying to separate conjoined twins!” 👯‍♂️

As THORChain navigates this stormy sea, it becomes painfully clear that protocols heavily reliant on the value of their native tokens carry inherent risks, much like the ill-fated Terra. ⚓

Effective risk management and sustainable design are not just buzzwords; they are the lifebuoys that could save users’ funds from sinking into the abyss. 🛟

“Essentially, Thorchain needs to maintain significant liquidity over the long term. But this will be challenging because ThorFi’s lenders and savers will logically be trying to withdraw their funds en masse,” Aggarwal concluded, perhaps with a hint of irony. 🤷‍♂️

2025-01-24 22:44

Terra Luna collapse

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