THORChain, a decentralized exchange and one of the liquid decentralized finance protocols by total value locked, plans to release “Lending” in 2023.
It is a feature THORChain says will complete their THORFi ecosystem. However, amid this development and community anticipation, RUNE remains under pressure, slipping 32% from April 2023 highs as of writing on May 30.
According to THORChain, Lending will function similarly to other decentralized money markets, including one of the earliest, MakerDAO, which operates on Ethereum.
With THORChain Lending, not only can the borrow deposit collateral, a token or coin already integrated by the platform, but also take loans with zero interest, liquidation, and expiry.
This arrangement means a borrower would effectively hold a loan without the risk of liquidation, irrespective of the collateral’s volatility. Moreover, THORChain says a user can be short the USD while being long on crypto assets such as Bitcoin and others.
Their feature will depart from how other competing decentralized money markets operate. Most require over-collateralization, considering the volatile nature of cryptocurrencies.
Borrowers will deposit collateral and create debt at a collateralization ratio (CR) set by the market. A distinction in ThorChain Lending, the protocol clarifies, is that debt will be denominated in TOR.
TOR is a stablecoin that tracks the value of USD, irrespective of the collateral used, and will be non-transferable.
There will be limits on collateral and risks contained by, among other factors, “slip-based fees when opening and closing loans, dynamic CR, and a circuit breaker on RUNE supply.”
Loan repayment, THORChain adds, can be done at any time and in any supported asset. All repayments will be converted to TOR.
Impact On RUNE
RUNE serves as the utility token of the THORChain ecosystem. Using the token, users can pay for gas and use it to secure the network. RUNE plays a role in ensuring the platform is decentralized and resistant to attacks from malicious agents.
With THORChain Lending, every new loan is expected to create a deflationary effect on RUNE. However, repaying the loan creates an inflationary impact.
If by the time the loan is created and closed, the price of the collateral has not moved relative to the RUNE price; there will be zero effect.
However, there will be an inflationary effect if the collateral price increases versus RUNE during this time, which could negatively impact the token price if many positions are opened that meet these criteria.
Ahead of this launch, RUNE prices remain flat in the last week of trading. However, it is up 7% from May 2023 lows.
As of late May 2023, DeFi activity is yet to recover. According to DeFiLlama data, TVL has stagnated below $50 billion in the last five months. During this time, Uniswap, a popular multi-chain DEX, and Curve, a stablecoin DEX, have dominated activity. THORChain has a TVL of $106 million, with most liquidity from tokenized Bitcoin.