- A Thorchain critic has alleged that the project is insolvent, citing $199 million in liabilities against $107 million in liquidity
- The protocol is accused of exacerbating financial risks through leveraged mechanics and non-circulating tokens
- Thorchain validators have reportedly paused the network to deliberate on restructuring options
A series of tweets from a critic of Thorchain, a decentralized liquidity protocol, has raised allegations of insolvency and financial mismanagement. The critic, X user TCB, claims that Thorchain’s liabilities far exceed its liquidity and that its leveraged design could trigger a downward spiral. Validators have purportedly paused the network while debating potential restructuring plans, but Thorchain has not confirmed these allegations.
Thorchain Accused of Financial Mismanagement
In the lengthy tweet thread, TCB alleged that Thorchain is “insolvent”, claiming that its liabilities total $199 million, while its liquidity pools hold only $107 million, suggesting that the protocol may struggle to meet its obligations if large-scale redemptions occur:
.@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
TCB argues that Thorchain’s financial troubles stem from its reliance on leveraged features, which involve minting Rune tokens to meet obligations. According to the tweets, this mechanism creates a “highly reflexive” system that could lead to a collapse in Rune’s value during a debt redemption rush. “If nothing is done, it will be a race to the exit, and the entire protocol’s value will vanish,” TCB alleges.
Validators Pausing The Network?
TCB also alleges that Thorchain validators have paused the network to consider options for addressing the crisis and proposes two potential paths to a resolution: either allow creditors to extract value at the cost of the protocol’s survival or implement a restructuring plan similar to Chapter 11 bankruptcy. In addition, TCB suggests freezing assets, tokenizing debt claims, and using system income to repay creditors.
Thorchain is yet to respond to the accusations, but the vast majority of the responses to TCB’s thread echoed his message that Thorchain had messed up. Shapeshift founder and Thorchain supporter Erik Voorhees noted that while its lending designs “failed” as they were “too risky,” the protocol would learn lessons and come out stronger:
The @THORChain situation…
– Node operators voted this evening to pause Lending and Savers withdrawals. Deposits had been turned off a year ago as the community became increasingly concerned with the risk.
– Remaining debts and collateral positions from Lending and Savers are…
— Erik Voorhees (@ErikVoorhees) January 24, 2025
Only time will tell if Thorchain can emerge from this issue unscathed or if it will end up ruing its perceived miscalculations.
