THORChain’s new feature may push back RUNE bears
THORChain, a decentralized exchange and one of the top decentralized finance protocols by total value locked, is planning to release a new feature called “Lending” in 2023. This feature is intended to complete their THORFi ecosystem. However, despite community anticipation, the price of the RUNE token has fallen 32% from its high in April 2023 as of writing on May 30.
THORChain Lending
According to THORChain, Lending will function similarly to other decentralized money markets, including MakerDAO, which was one of the earliest to operate on Ethereum.
With THORChain Lending, borrowers will be able to deposit collateral in the form of a token or coin already integrated by the platform, and take loans with zero interest, liquidation, and expiry. This means that a borrower can hold a loan without the risk of liquidation, regardless of the collateral’s volatility. Additionally, users can be short on USD while being long on crypto assets like Bitcoin and others.
THORChain’s Lending feature is different from other competing decentralized money markets, which typically require over-collateralization due to the volatile nature of cryptocurrencies. Borrowers will deposit collateral and create debt at a collateralization ratio (CR) set by the market. However, debt will be denominated in TOR, which is a stablecoin that tracks the value of USD, irrespective of the collateral used, and will be non-transferable.
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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.” Additionally, loan repayment can be done at any time and in any supported asset, and all repayments will be converted to TOR.
Impact On RUNE
RUNE serves as the utility token of the THORChain ecosystem, allowing users to pay for gas and use it to secure the network. RUNE also 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, but repaying the loan will have an inflationary impact. If the price of the collateral has not moved relative to the RUNE price by the time the loan is created and closed, there will be no effect. However, if the collateral price increases versus RUNE during this time, there could be a negative impact on the token price if many positions are opened that meet these criteria.
As of late May 2023, DeFi activity is yet to recover, with TVL stagnating below $50 billion in the last five months, according to DeFiLlama data. During this time, Uniswap and Curve have dominated activity. THORChain has a TVL of $106 million, with most liquidity from tokenized Bitcoin.
