Why is THORChain (RUNE) Price Falling? Check out the reasons!

Bittime - In recent days, the crypto community was shocked by the sharp drop in THORChain (RUNE) price. 

The native token of this cross-chain exchange protocol experienced a significant decline, prompting questions among investors regarding the factors that caused RUNE's value to plummet.

What is THORChain (RUNE)?

THORChain is a decentralized protocol that allows the direct exchange of crypto assets between different blockchains without the need for intermediaries.

Built on the Cosmos SDK, the platform functions as a Layer-1 decentralized exchange (DEX) that uses the Automated Market Maker (AMM) protocol to provide liquidity and execute transactions in a decentralized manner. RUNE tokens serve as native currency used for various functions within the THORChain ecosystem.

Reasons Why RUNE Prices Have Dropped Drastically

Since January 2024, THORChain has accumulated large amounts of debt in the form of Bitcoin (BTC) and Ethereum (ETH) through lending and savings programs.

However, the expansion of loans without adequate collateral mechanisms left this platform trapped in a liquidity crisis, where the collateral held was not enough to cover the maturing debt. RUNE token price based on today's Bittime Market.

THORChain Developer Efforts

To prevent a crash, the THORChain team decided to temporarily suspend the withdrawal function for 90 days. This decision actually caused panic among investors, who then started selling RUNE en masse to protect their capital, causing the value of this token to continue to decline.

One of the core problems that caused this crisis is THORChain's lending model which is completely dependent on RUNE. Each time a loan is repaid, the system requires the creation of additional RUNE to pay off the debt.

This led to a rapid increase in the supply of RUNE, triggering severe inflation and a decrease in the value of the token compared to assets with limited supply such as Bitcoin and Ethereum.

As a result, the more borrowers repay their debts, the more RUNE prices fall, creating a negative spiral that shakes market confidence. When RUNE's value was no longer attractive, large investors began to withdraw, exacerbating the existing crisis.

RUNE Development Update

According to data from CoinGecko, the price of RUNE has fallen more than 60% in the past week, with the market capitalization currently standing at just $500 million (Rp. 8.15 trillion).

Bankruptcy rumors are gaining strength, with reports that many validators are choosing to leave the network, which could disrupt the operation of the system as a whole.

Additionally, on-chain data shows that many large investors and insiders have sold their entire RUNE holdings, causing an even more severe decline in the value of the token. If these bankruptcy rumors prove to be true, this could be a major blow to the THORChain ecosystem and the DeFi market in general.

Conclusion

The drastic drop in THORChain (RUNE) price was caused by a combination of a liquidity crisis, a problematic lending model, and a loss of investor confidence.

The steps taken by the THORChain team to stabilize the situation do not appear to have succeeded in restoring market confidence. Investors are advised to monitor further developments closely and consider existing risks before making further investment decisions.

FAQ

What caused RUNE prices to drop drastically?

The decline in RUNE prices was caused by a liquidity crisis due to the accumulation of debt in the form of BTC and ETH, as well as a lending model that caused RUNE supply inflation.

What steps did THORChain take to overcome this crisis?

The THORChain team has temporarily suspended the withdrawal function for 90 days to prevent a collapse, but this move caused panic among investors.

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