The THORChain blockchain is in big trouble. The project was forced to suspend a large part of its services including the withdrawal of Bitcoin (BTC) and Ether (ETH) on its loan and savings programs.

In the midst of a financial storm, the protocol aims to avoid insolvency. This is part of a 90-day “restructuring” plan by the network’s node operators to reduce problems associated with some of its services. Several trading features such as swaps remain operational, which suggests that the protocol’s actions clearly concern its lending and savings services. There was concern about THORChain’s ability to meet its obligations towards its new businesses in the event of widespread redemptions of loans it manages. If all the loans and savings positions offered by THORChain were to be liquidated simultaneously, this could result in the loss of the protocol. If this situation occurs, the protocol would not have as its sole outcome to declare itself bankrupt.

The price of its cryptocurrency Rune has plunged with the announcement of ongoing difficulties.

This problem is mainly due to the issuance of many BTC loans by THORChain in the early 2020s, when its price was significantly lower than currently, thinking it would be a good deal. When the price of Bitcoin started to climb, the blockchain created a large number of RUNE, its native cryptocurrency, in order to cover its obligations. The price of the token has then significantly decreased in 3 years.

In addition to the difficulties of repaying Bitcoin loans that the blockchain is experiencing, few people operating THORChain’s loan and savings services have liquidated their investments in recent years.

This complex situation reminds us of the need for clear legislation to allow challenge services to establish themselves in a healthy way. Indeed, the lack of collateral guarantee obligation leaves too much room for ponzi-type systems or companies that may be concerned about their clients' protection mechanisms. Meanwhile, users who have locked in liquidity on the protocol will have to wait until the end of the 90-day period to see if the protocol can handle these repayment obligations.