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Thorchain Crash: The Earthquake That Shook the DeFi World

By KMatt | Blogging Crypto | 4 Feb 2025

Another seismic moments in the crypto market: the Thorchain crash.
Its native cryptocurrency, RUNE, lost more than 90% of its value in several months and sent thousands into a panic. How could such a disaster happen?

A building collapsed under its own weight

Thorchain was once praised for its innovative solution for exchanging cryptocurrencies between different blockchains. It fell victim to an unprecedented liquidity crisis. The ambitious lending and savings project, ThorFi, turned out to be a ticking time bomb. The overexposure to loans, combined with the high volatility of RUNE's price, created an unsustainable situation. When investors started to reclaim their money, the system collapsed, unable to cope with the demand.

A precarious recovery plan

To try to fix things, the Thorchain team has a rather ambitious repayment plan in store, which includes:
- Minting 200 million TCY tokens.
- Giving each of the affected users 1 TCY token per dollar lost.
- TCY will retain 10% of the fees generated on ThorChain and they will be distributed daily to TCY holders via the RUNE token. This will be a perpetual process until the dollar value is twice the debt.
- Creating a RUNE / TCY liquidity pool with $ 500,000 at an initial value of TCY = $ 0.10.
- In total, funding of $ 5 million in the pool via treasury savings, distributed in $ 500,000 per week for 10 weeks. A second and, for now, final round of $ 5 million will follow.
- The creation of a development council composed of 6 individuals: 2 developers, 2 frontmen and 2 large investors.

Although this proposal has been successful in the community compared to other previous proposals, this solution is also not certain to work.
As specified, in fact, the amount of the refund will be directly related to the commissions generated by ThorChain, which, after the collapse of RUNE, an integral part of the Bridge process, have lost a solid user base.
The goal, therefore, is to make the value of the commissions paid in RUNE to users greater than $ 1 for each TCY. The sustainability of this refund plan will be directly related to the performance of the RUNE token.

The value of RUNE is not finding a large number of investors, despite having recovered a minimal part of what was lost in the last 24 hours, considering that it has lost over 90% from the highs created in 2024. Not only that, but with its price having touched $ 1.2 only in 2025, it has fallen by -77%.

Lessons to Learn

The collapse of Thorchain is a major blow to the entire DeFi ecosystem, a reminder that even the most promising projects can and do fail if not handled with the utmost care. This crisis raises important questions about the sustainability of lending-based business models and the need for stricter regulation of the sector.
The future of Thorchain does not look very bright. The project can recover, but the challenges ahead will be enormous. Investor confidence has been severely dented and will be difficult to revive. Furthermore, the DeFi segment is a highly competitive area.

Conclusion

The collapse of Thorchain is a pivotal moment in the history of DeFi. It also served as a stark reminder that even the most pioneering projects can fail, and that no matter how innovative the space may be, it is only through regulation that the growing sector can remain sustainable and safe.