THORChain Converts Debt Into Equity Amid Liquidity Challenges

According to Cointelegraph, decentralized liquidity protocol THORChain has taken significant steps to address its liquidity issues by converting its defaulted debt into equity. On January 23, THORChain halted its lending and savers programs for Bitcoin (BTC) and Ether (ETH) to avert an insolvency crisis and restructure its debt. The platform paused ThorFi redemptions for 90 days, allowing the community to devise a stabilization plan. Following this suspension, the THORChain community proposed various restructuring plans to ensure the network's continued operation while compensating affected users. On February 2, the platform's node operators approved a proposal to convert its defaulted debt into tokens representing equity in the platform. This plan involves minting 200 million 'TCY' tokens and distributing them to affected users, with each token representing $1 of the platform's debt. The new token will receive 10% of the network's revenue indefinitely, providing users with the opportunity to claim one TCY per dollar owed. Maya Protocol's Aaluxx Myth, the pseudonymous author of the proposal, explained that TCY holders would receive 10% of fees in perpetuity, paid out in RUNE every 24 hours, similar to $MAYA, offering uncapped upside potential for new liquidity to bail out users. Risk-averse users can sell the RUNE to any asset of their choosing daily. Additionally, the THORChain treasury plans to create a liquidity pool, allowing tokenholders to sell their claims at their discretion. The platform stated that this plan enables creditors to exit on their own terms as market demand for THORChain's revenue materializes in the token's price. While the protocol has established its plan, it is still finalizing the timeline and specifics. Despite the restructuring plan's intentions to repay investors, some community members have expressed concerns. One community member commented on X that the plan is complex and would require additional investment and trust in THORChain, which has a history of mismanaging money and trust. The user noted that new capital entering is 'permanently taxed' under the plan. Furthermore, the issuance of a new token granting holders 10% of the platform's revenue has raised questions about whether it qualifies as an unregistered security, potentially leading to legal action against THORChain. Another community member expressed skepticism about the tokens receiving revenue indefinitely, suggesting it might only last until the platform changes its policy. Cointelegraph reached out to THORChain for comment but had not received a response by the time of publication.