Lending Design
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THORChain’s Lending was designed to be the simplest crypto borrowing experience for users. By removing barriers around collateral (no risk of liquidation), debt (0% interest to worry about), and loan terms (no expiration), the result is a stress-free experience.
When a THORChain loan is opened, the collateral provided is swapped to $RUNE and the difference between the collateral value and the loan value is burned.
More borrowers drives up the collateralization ratio and increases stored equity versus issued debt. By not pressuring borrowers to repay quickly, the system attracts more outside capital, increasing the value and stability of the network, making lending more attractive and beneficial for both borrowers and THORChain. Therefore, there’s no need for interest, liquidations or expiration.
THORChain uses Layer 1 asset collateral to issue dollar-based debt, holding the collateral as equity. The more collateral added relative to Liquidity Pool depths, the higher the Collateralization Ratio.
Therefore: Early participation is key. The higher the Collateralization Ratio, the safer the system. Since there’s no liquidation or interest, borrowers might be less inclined to repay loans, thus boosting THORChain’s equity value.
THORChain’s TOR is a unique internal pricing oracle that remains properly priced even during stablecoin volatility. It can’t be traded or held at this time, and its price is derived from the median price of all stablecoins on THORChain (USDC, USDT, BUSD, LUSD, GUSD, USDP, DAI, etc).
THORFi Lending was designed to avoid over-leveraging or taking on unjust risks for borrowers and THORChain. performed a on the risks of THORChain’s lending protocol, complete with economic simulations.
Lending safety mechanisms include:
THORChain aims to ensure the collateral is always secure and controls the speed of new debt opening through circuit breakers so it may not exceed network liquidity.
Lending is capped based on the outstanding RUNE supply, currently consisting of:
500M RUNE hard limit
~15M RUNE already burnt due to non-upgraded BEP2/ERC20 RUNE
To ensure safe scaling, on launch only 1/3rd of the burnt RUNE (~5M) will be available for loans. More RUNE will be burnt when loans are opened/closed in favorable conditions and the internal swap fees across loans permanently burn RUNE, so the gap should continually increase.
As more RUNE is burnt and the gap grows, additional loans can be created.
If RUNE price falls drastically against collateral assets, then net inflation of RUNE could occur due to excessive minting of RUNE from total loan closures vs loan openings.
THORFi Lending has a built-in circuit breaker to pause new loans and disable lending if minting causes total supply to exceed 500M RUNE. In such a scenario, THORChain Reserves will step in to cover the remaining collateral payouts. You can learn more .