THORChain is attempting to avert a serious situation. With THORChain block rewards reduced by 99%, will the price of RUNE rebound or continue to decrease as validators withdraw?

THORChain enables users to exchange tokens across various chains seamlessly. For example, users can swap ETH for BTC affordably and securely. Although this service remains operational, the team has broadened its offerings to include token lending and borrowing.

Lessons have been harsh from the painful collapse of Celsius, Voyager, and BlockFi. THORChain struggled to avoid a similar fate in January 2025.

The $200 Million Debt Restructure

The team opted to halt Bitcoin and Ethereum lending to improve the situation and averted a potential crisis. Furthermore, they will introduce a new token as they manage a staggering $200 million debt.

To implement this, the THORChain community passed “Proposal 6,” which will convert nearly $200 million of unnecessary debt into equity. The team will issue 200 million Thorchain Yield (TCY) tokens as compensation.

Update from the previous summary:

1. Proposal 6 implementation plans were released for feedback. Generally well-received, with exceptions regarding DLP considerations. The implementation plan has been revised (v2: https://t.co/6anX3JIqJs) to allow DLP to either opt out (locking in losses) or continue to recover… https://t.co/C6dmfRt0NU pic.twitter.com/q0hnTsxV0i — Runetard ⚡️ 🍫 💦 🚀 @therunetard February 9, 2025

TCY will be distributed to lenders and savers at a rate of 1 TCY per USD of defaulted debt. To promote further engagement, TCY holders will earn 10% of THORChain’s profits indefinitely.

The result: a 80% drop in RUNE prices.

THORChain Reduces Block Rewards by 99%

It worsens for RUNE holders, primarily the validators of THORChain.

The community again voted to drastically cut the block rewards handed out to validators from 25,000 RUNE to just 2 RUNE each day. This governance decision could either backfire or lead to the team being celebrated as visionaries should this strategy work and RUNE recover from the enforced supply shock.

THORChain nodes voted to eliminate block rewards 🔥 Moving from 25,000 RUNE per day generated from the Reserve down to 2 per day, effectively abolishing inflation. 100% of revenues now come from swap fees, with a deflationary burn of 5% of system income. https://t.co/A3eDAziPnj
— THORChain @THORChain February 11, 2025

This voting means that validators must adapt to a steep decline in earnings, often needing to trim their operational expenses or possibly exit the system altogether.

The situation may resemble what happened during Bitcoin’s halving, where numerous miners sold off, leading to a purging of underperforming miners.

It is undeniably a bold and unprecedented move, especially since, akin to Ethereum or Solana, for instance, validators are crucial in validating transactions and maintaining network security.

Ultimately, this decision may prove tactical and could be regarded as a strategic chess move towards ensuring long-term viability, but it still remains uncertain how validators will respond. If they exit in large numbers, it could accelerate RUNE’s collapse and jeopardize the entire THORChain ecosystem.

Future of the DeFi Protocol: Will RUNE Keep Losing?

With block rewards eliminated, THORChain operates in a future where, ultimately, even Bitcoin miners and Ethereum validators will derive incentives from the network based on fees each time they validate a block of transactions.

This model will only be advantageous if the demand for the protocol increases and more users are drawn to use the network for swaps.

Meanwhile, as the community assesses the situation, RUNE has reversed its gains from February 10, slipping further from its previous position. Currently, RUNE is down 80% and trades below the 2024 range, likely to diminish even further if panic ensues.

Local support is pegged at $1, and bulls need to elevate prices above $2 to ignite any chance of recovery, ideally back to the Q4 2024 highs of approximately $7.5.