THORChain ‘eerily similar’ to Terra Luna implosion: Osmosis co-founder

Sunny Aggarwal, co-founder of Osmosis, believes that Thorchain’s liquidity problems reflect the collapse of Terra Luna in 2022.

Thorchain, a decentralized inter-chaînes liquidity protocol, A has put its network in break operations due to a major debt crisis amounting to nearly $ 200 million.

This decision established parallels with the collapse of Terra/Luna in 2022, with Sunny Aggarwal, co-founder of Osmosis, a decentralized exchange in the cosmos (ATOM), commented the situation on Crypto.News.

“The situation that takes place with Thorchain is strangely similar to what happened with the implosion of Terra/Luna in 2022, where the solvency of the protocol depended too much on the evolution of the prices of the native token,” said Aggarwal .

Thorchain’s design intrinsically positions him as long by reflex on his native token, Rune. This means that the solvency of the protocol depends on the outperformance of rune prices like Bitcoin (BTC) and Ethereum (Ethn), which serve as a guarantee.

Recent market trends have not favored Rune (RUNE), leading to financial instability.

The protocol is currently confronted 97 million dollars of borrowing debts and $ 102 million in debt of depositors and synthetic assets, which pushes it to the edge of bankruptcy.

In response, Thorchain suspended his loan and savings programs, particularly affecting the withdrawals of BTC and Eth. This decision is part of a 90 -day restructuring plan to stabilize the system and mitigate additional risks.

Terra Luna collapse

The situation reflects that Terra/Luna collapseWhere the dependence of the protocol with regard to the value of his native token has led to a catastrophic failure. In May 2022, Terra, the third largest cryptocurrency ecosystem at the time, collapsed in three days, erasing a valuation of $ 50 billion.

Aggarwal also said that “it is not certain that lenders can be fully compensated. Some have suggested that the deficit could be filled by the protocol costs collected over time. But that neglects an important point: most of Thorchain’s liquidity comes from his loan and savers, Thorfi. It therefore has no sense to consider Thorchain and Thorfi as distinct entities.

While Thorchain is going through this crisis, it is clear that there are inherent risks associated with protocols strongly dependent on the value of their native tokens, as a terra.

Effective risk management and sustainable design are essential to prevent such scenarios and protect users’ funds.

“Essentially, Thorchain must maintain significant long -term liquidity. But that will be a challenge because Thorfi lenders and savers will logically try to withdraw their funds en masse, “said Aggarwal.