Sunny Aggarwal, co -founder of Osmosis, is of the opinion that the liquidity problems of Thorchain reflect the collapse of Terra Luna in 2022.
Thorchain, a decentralized cross-chain liquidity protocol, has stopped its network activities due to a considerable debt crisis worth almost $ 200 million.
This step has drawn parallels with the collapse of Terra/Luna in 2022, in which Sunny Aggarwal, co -founder of Osmosis, a decentralized exchange in the Cosmos (Atom) ecosystem, commented on the situation to Crypto.News.
“The situation that unfolds with Thorchain is creepy comparable to what happened with the implosion of Terra/Luna in 2022, where the solvency of the protocol was too strongly dependent on the price performance of the native token,” said Aggarwal.
The design of Thorchain positions it inherent as a reflexive for its original token, Rune. This means that the solvency of the protocol depends on the price development of Rune that performs better than assets such as Bitcoin (BTC) and Ethereum (ETH), which are used as collateral.
Recent market trends have not been to the benefit of Rune (Rune), which led to financial instability.
The protocol currently has to do with $ 97 million in loan obligations and $ 102 million in deposits and synthetic assets, which means it is on the brink of bankruptcy.
In response to this, Thorchain has suspended its credit and savings programs, in particular with regard to the recordings of BTC and ETH. This decision is part of a restructuring plan of ninety days, aimed at stabilizing the system and limiting further risks.
.@Thorchain is insolvable
In the case of a large repayment of debts and/or the dismantling of the debts by savers and synths, it is certain that TC cannot meet its obligations in Bitcoin and ETH.
Validators decided to pause the network while they voted over a restructuring plan
🔽🧵
– TCB (@1984_is_today) January 24, 2025
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Terra Luna collapse
The situation reflects the collapse of Terra/Luna, whereby the dependence on the protocol of the value of the original token led to a catastrophic failure. In May 2022, Terra, at the time the third largest cryptocurrency ecosystem, collapsed within three days, as a result of which $ 50 billion of appreciation demanded.
Aggarwal further stated that “it is uncertain whether lenders can be fully compensated. Some have suggested that the deficit could be covered by protocol fees that are collected over time. But this ignores an important point: the majority of the liquidity of Thorchain comes from the credit and savings platform Thorfi. So it makes no sense to consider Thorchain and Thorfi as separate entities. “
While Thorchain passes this crisis, it is clear that there are inherent risks associated with protocols that are highly dependent on the value of their own tokens, similar to Terra.
Effective risk management and sustainable design are crucial to prevent such scenarios and to protect the funds of users.
“In essence, Thorchain must retain considerable liquidity in the long term. But this will be a challenge, because the lenders and savers of Thorfi will logically try to withdraw their money en masse, “says Aggarwal.
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