RUNE, the native cryptocurrency of the decentralized liquidity protocol THORChain, is facing strong selling pressure amid reports of insolvency. The RUNE price has crashed 30% in the last 24 hours with its market cap plunging under $800 million and daily trading volume shooting up by 112% to $758 million.
RUNE Price Crashes Amid Insolvency Risks
THORChain’s native cryptocurrency RUNE has witnessed strong selling pressure as the liquidity protocol faces insolvency risks. In order to prevent this, the protocol has to stop Bitcoin (BTC) and Ethereum (ETH) withdrawals on its lending as well as the savers program.
As a result, node validators decided to pause the network for a minimum of 90 days in order to resolve the debt issues. As of now, THORChain’s lending program supports only BTC and ETH. However, its saver vaults provide access to a wider range of assets.
In the case that all loans and saver positions were simultaneously closed and repaid, a potential insolvency risk emerges. Furthermore, with the RUNE price collapsing, it could trigger further trouble for the interblockchain settlements protocol THORChain.
THORChain Community Members Complain
Some of the community members have raised concerns asking RUNE investors to stay cautious considering that the protocol has significant liabilities. According to crypto analyst TCB, the protocol’s liabilities amount to:
$97 million in lending obligations (primarily in ETH and BTC).
$102 million tied to savers and synthetic assets (also in ETH and BTC).
Furthermore, on the asset side, Thorchain currently holds $107 million in exogenous liquidity within its liquidity pools. However, the analyst TCB warned that the liquidity providers (LPs) could withdraw these liquidity assets at any moment if RUNE holders trigger a panic selloff. This could further exacerbate if the RUNE price collapses from here. “I’m not going to sugarcoat the situation—this is far from all right,” TCB stated.
The Interblockchains protocol mints RUNE and sells it into liquidity pools to cover liabilities. Community member TCB criticized this design calling it financially unstable and highly reflective.
Recent activity highlights the issue: repaying $4 million worth of RUNE liabilities on the previous day led to the protocol accruing additional liabilities amounting to several million RUNE.
What’s the Solution to This?
TCB proposed two solutions ahead for THORChain, however, it comes with its own set of challenges. The decentralized protocol is currently at a crossroads. TCB said:
Continue Operations Without Intervention: This would allow an estimated 5-7% of the system’s value to be extracted by a select few who exit early, triggering a downward spiral in RUNE price. Under this scenario, approximately $75 million would go to those exiting first, while $1.5 billion in value could be wiped out, potentially leading to the destruction of Thorchain.
Default and Rebuild: The protocol could default on its debts and declare bankruptcy, preserving the valuable components of its ecosystem. By salvaging these assets, the community and stakeholders could work collaboratively to grow the network. This approach aims to restore the $200 million in outstanding capital over time, ensuring the protocol’s long-term viability and stability.
As said, both these options come with their own set of risks. Soon after the node validators paused the network the RUNE price drop has been arrested at $2 for now. In fact, the THORChain crypto price has bounced back 30% from the bottom currently trading at $2.30.
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