THORChain At Crossroads: A Chess Move, Or RUNE Death Spiral?

THORChain is trying to prevent a crisis. With Thorchain block rewards down 99%, will RUNE price recover or drop even further as validators exit?

THORChain allows users to swap tokens across multiple chains. For example, you can swap ETH for BTC cheaply and securely. While this service is still available, the team expanded its offerings, introducing token lending and borrowing.

There are harsh lessons from the painful collapse of Celsius, Voyager, and BlockFi. And THORChain had to scramble not to fall into this abyss in January 2025.

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The $200 Million Debt Restructure

The team decided to pause Bitcoin and Ethereum lending to salvage the situation and avoid a possible crisis. In addition, they will launch a new token as they restructure a whopping $200 million debt.

To do this, the THORChain community approved “Proposal 6,” which will convert nearly $200 million of “unserviceable” debt into equity. The team will issue 200 million Thorchain Yield (TCY) tokens as compensation.

Update from last summary:

1) Proposal 6 implementation plan was released for commentary. Mostly well received except for DLP considerations. Implementation plan has been revised (v2: https://t.co/6anX3JIqJs) to allow DLP to choose to leave (lock in losses) or stay to recoup… https://t.co/C6dmfRt0NU pic.twitter.com/q0hnTsxV0i

— Runetard ⚡️ 🍫 💦 🚀 (@therunetard) February 9, 2025

TCY will be distributed to lenders and savers at 1 TCY per USD of defaulted debt. In a bid to encourage more participation, TCY holders will receive 10% of THORChain’s revenue in perpetuity.

The result: An 80% plunge in RUNE prices.

THORChain Drops Block Rewards by 99%

And it gets worse for RUNE holders, most of who are THORChain validators.

The community voted once more to drastically reduce the block rewards distributed to validators from 25,000 RUNE to 2 RUNE per day.

This governance decision and the community’s choice would either likely backfire or see the team lauded as geniuses should this maneuver pay off and RUNE recover from the supply shock.

THORChain nodes voted to remove block rewards 🔥

From 25,000 $RUNE per day emitted from the Reserve down to 2 per day, eliminating inflation completely

100% of income is now from swap fees, with a deflationary burn of 5% system income pic.twitter.com/A3eDAziPnj

— THORChain (@THORChain) February 11, 2025

The vote means validators now have to contend with a sharp drop in earnings, and many will have to readjust, perhaps even slashing other operational costs or even exiting.

It may be similar to what happened when Bitcoin halved its block rewards, forcing a miner sell-off and a purge of “weak” miners.

Admittedly, it is bold and unprecedented, especially considering that, like Ethereum or Solana, for example, validators play a crucial role in validating transactions and ensuring the network’s security.

At the end of the day, the decision will prove strategic and possibly be hailed as a chess move toward ensuring long-term sustainability, but it remains to be seen how validators will react

. If it backfires and they exit en masse, it would be a gamble that only fast-tracked the collapse of RUNE and the THORChain ecosystem.

DeFi Protocol In The Future: Will RUNE Extend Losses?

With block rewards eliminated, THORChain is operating in the “future” where, eventually, even Bitcoin miners and Ethereum validators will be incentivized by the network but from fees whenever they approve a block of transactions.

This model will only pay off assuming protocol demand jumps and there is a promise of more users leveraging the network for swaps.

(RUNEUSDT)

Currently, as the community processes what happened, RUNE reversed gains of February 10 and ticked lower yesterday. Although prices are flat, RUNE is down 80% and trading below the 2024 range, and likely to trend even lower if panic sets in.

The local support is at $1, and bulls need to push above $2 for any chance of prices recovering, at least back to Q4 2024 highs of nearly $7.5.

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