Recently, the liquidity network THORChain (RUNE) debuted its lending feature, allowing users to use their native Layer-1 (L1) assets, such as Bitcoin (BTC) and Ethereum (ETH), to secure loans in TOR, a stablecoin with a USD-comparable value.

The release claims that this action creates new opportunities for financial involvement by enabling users to borrow money without the “burdens” of interest, liquidations, or expiration.

THORChain Introduces Interest-Free Loans

The lending process is meant to be simple to use and “straightforward,” with a focus on reducing cognitive load.

Borrowers can collateralize their assets within a range of collateralization ratios (CR), ranging from 200% to 500%, depending on the state of the market. The CR establishes how much debt borrowers are permitted to take on about their collateral.

Furthermore, there are no liquidations in Thorchain’s lending system. In conventional loan schemes, borrowers run the risk of having their collateral sold off against their will if its value falls below a predetermined level. 

However, by considering the collateral as equity (RUNE IOU), ThorChain’s design completely avoids this danger.

Because the saved equity serves as the liability, there is no concern if the collateral is less than the debt’s worth. According to the paper, this strategy guarantees a more user-friendly experience and removes the need for borrowers to continuously monitor asset prices.

See also  Nomura's Laser Digital Launches Bitcoin Fund for Institutional Investors

Borrowers have freedom because the loans given through ThorChain’s lending feature have a minimum term of 30 days.

THORChain’s Circuit Breaker System

ThorChain has a circuit breaker mechanism in place to provide security and guard against inflation.

The system would halt new loans and turn off the lending feature in the event of a sharp decline in the value of RUNE, the native token of the Thorchain network, in comparison to collateral assets like BTC and ETH.

No more RUNE inflation is possible at this time, and the protocol’s reserve will pay for the remaining collateral payouts.

With the intention of eventually supporting other Layer 1 gas assets, such as Binance Coin (BNB), Litecoin (LTC), Avalanche (AVAX), and DOGE, the lending tool will initially only accept BTC and ETH as collateral.

ThorChain’s native token, RUNE, has decreased by about 8% over the previous 24 hours as of the most recent update and is presently trading at $1.694 despite the excitement surrounding the introduction of the new loan protocol.

Nevertheless, despite a concomitant rise in the social volume of the THORChain cryptocurrency, the token has managed to sustain significant gains of 20% and 80% over the past seven and fourteen days, respectively.

See also  Avalanche's Promising Outlook for April
Share.

Leave a Reply