Lending on the decentralized liquidity protocol has skyrocketed more than threefold in the past week.
Traders are rushing to take out zero-interest loans on Thorchain after the cross-chain liquidity protocol lifted its collateral limit.
There is now $120 million in ETH and BTC collateral on the protocol, compared with $36 million before the cap was lifted.
On March 8, Thorchain announced it would burn 60 million of the protocol’s native RUNE token, worth $500 million at today’s price. The move opened up an additional $160 million worth of collateral capacity for ETH and BTC — or roughly 2,000 BTC and 36,000 ETH.
Investors have deposited 1,005 BTC (or $67.3 million), up from 400 BTC on March 8, according to NineRealms, an institutional liquidity protocol for Thorchain. Meanwhile, there is now 15,279 ETH (approximately $53 million) locked up for loans, a 400% increase.
Across the board, Thorchain activity from traders, investors, borrowers, and lenders is up. Although loans peaked following the March 8 announcement, when traders borrowed $6.6 million, interest has since waned, according to a dashboard from Flipside Crypto.
Daily loans opened have also surged, spiking to triple digits in ten of the past eleven days. Thorchain’s volume has also ramped back up this month, while its total value locked (TVL) surpassed $500 million on March 12.
Thorchain offers interest-free loans against major crypto assets like Bitcoin and Ether, with no liquidations or fixed expiration dates. As part of the latest upgrade, collateralization ratios for BTC and ETH were reduced to 200%, meaning users can borrow half the value of their assets.
When a loan is opened on Thorchain, the collateral asset is sold for RUNE, while the difference between the collateral value and the loan value is burned. Conversely, when loans are repaid, RUNE is minted and swapped for the original collateral asset, which is returned to the borrower.
Thorchain has piqued the interest of prominent crypto investor, Fred Krueger, who is now using the platform to leverage a loan on Bitcoin to acquire more Bitcoin.
“I’m doing a small-scale test of borrowing BTC against my BTC using ShapeShift,” Krueger tweeted on March 17. “So far, I am liking what I am seeing,” he added.
Krueger, who describes himself as a “Bitcoin maxi” on his X bio, triggered the ire of other so-called Bitcoin maximalists, who believe giving up Bitcoin as collateral to be exchanged for a different token is akin to blasphemy. Critics of Krueger’s Thorchain adventure compared the protocol with failed lenders previously operating in the Centralized Finance (CeFi) sector.
“Blockfi springs to mind. Oh and Celsius. Same shit, different year. Will end badly,” wrote one user, with several others asking if Krueger’s play was a paid sponsorship. Another Bitcoiner foresees that Krueger will “learn a lesson the hard way.”
But Thorchain is different from BlockFi in several aspects.
The DeFi protocol runs on a transparent and open blockchain, allowing all to scrutinize the collateralization and health of loans taken out from the protocol. Additionally, Thorchain requires 200% collateral for any loan.
BlockFi and Celsius, on the other hand, went under for using customers’ funds to take risky bets without disclosing those investments.
Still, using decentralized protocols does not come without some risks.
A potential vulnerability of Thorchain’s design is excessive minting of RUNE if too many borrowers rush to redeem their collateral at the same time, even as the team has put multiple safeguards in place to mitigate the risk. The protocol is also just springing back from a string of exploits and code vulnerabilities.
Even so, zero-interest loans against BTC and ETH are proving attractive enough to outweigh those concerns.
