ThorChain restructures with $200M debt-to-equity issue and new TCY token

ThorChain, a network for DeFi services, has reached a consensus to restructure its bad debt in a $200M debt-to-equity swap. To reward its users, ThorChain will issue a new asset, TCY, which will grant holders a 10% share of the platform’s revenues. 

ThorChain will restructure the debt of its ThorFi service after a community vote for a $200M debt-to-equity conversion. The ThorFi service was put on hold at the end of January because it carried overwhelming unserviceable debts. The converted debt will aim to compensate creditors, who had their collaterals locked on ThorFi in January.

ThorFi discontinued Lending and Savings redemptions, after building up $200M in toxic unserviceable debt. Node operators voted by proxy to restructure ThorChain and ThorFi, initially starting a 90-day rebuilding period. During that time, a new proposal was made to avoid new fundraising, instead relying on new liquidity through the launch of a bailout asset, TCY.

ThorChain worked as normal, though the shakedown caused $100M in lost liquidity and a crash in the price of RUNE, the chain’s native token. The chain itself was not affected in terms of transactions and other DeFi activity. ThorChain still carries $208.63M in total value locked. 

ThorChain to compensate borrowers and savers with new token

To remedy the situation, the ThorChain community voted on Proposal 6, which will restructure the debt. Borrowers and Savers, who put BTC or ETH as collateral, will not receive their assets in kind. 

Instead, ThorChain will issue a new TCY token, and compensate borrowers and savers based on its value. All affected parties will receive $1 in equity, or 1 TCY for each $1 in collateral or stake held through ThorFi. TCY holders will be paid their passive income in RUNE daily and can choose to sell their rewards.

TCY will grant its holders 10% of ThorChain revenues, but there is no deadline for fully compensating all holders of valuable collateral. The conversion turns the protocol’s creditors into automatic stakeholders according to the positive Proposition 6 vote.

Some of the lenders were not too happy with the decision, but it may be the only recourse for their loss. 

Since the announcement of closing down withdrawals from ThorFi, the price of RUNE erased more than 50%. The token, which traded at around $3.30, slid to a one-month low of $1.25, with no signs of recovery. In a bid to shore up RUNE, ThorChain may lower the issuance reward by 80%, to decrease selling pressure from nodes and validators. 

I think we will be able to lower block rewards by 80%, neutralize its $RUNE sell pressure entirely and do so sustainably for the benefit of both DLPs & Nodes. Expect Proposal 6 implementation plan next week with this and more details! @Orion_9R and I will keep doing the math ⚡️

— Aaluxx Maya Protocol⚡️🍫🛡️ (@AaluxxMyth) February 2, 2025

The value of RUNE remains key for the stability of ThorChain’s DeFi protocols. RUNE is part of the mix for supporting synthetic crypto products. However, a rapid drop in RUNE could easily translate into insolvency for ThorChain.

The success of ThorChain’s lending restructuring depends on the overall sentiment of the crypto market. Proposal 6 arrived at a time when most altcoins took double-digit losses, while DeFi lending suffered liquidations. With more bearish expectations, the recovery of ThorFi may be even harder, following the reputation damage. 

Creditors may receive payout in two years

The launch of TCY tokens will create a new source of liquidity. One of the plans for ThorChain is to create a relatively small liquidity pool with $500M injected, where traders can redeem some of the TCY at $0.10 to the dollar. For the full price, the creditors may have to wait up to two years to get the full value of TCY.

The market price of TCY will be the marker that will make the current creditors whole. ThorChain voted on deploying $5M of its treasury to buy $500K of TCY per week for 10 weeks, leaving the market to reprice the token. This way, holders are not pressured to exit and can gain some cash flows from rewards. 

The liquidity from the ThorChain treasury will shore up TCY to a minimal price of $0.10. TCY may turn out to be a temporary asset, used until all creditors are made whole. The community supported the idea of TCY, suggesting the launch of simple trading options for those who want to buy out creditors. 

ThorChain also accepted the vote to retire the ThorFi program, replacing it with Liquidity Nodes as an option. 

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