The majority of validators and other governance members voted in favor of converting debt into equity, moving forward with the TCY issuance.
By Chimamanda U. Martha
Edited by Julia Sakovich
Updated
3 mins read
On Monday, February 3, THORChain announced that members of its decentralized autonomous community (DAO) had approved its proposal to convert approximately $200 million of defaulted debt into equity through the issuance of a new token, TCY (Thorchain Yield).
According to an industry report, the proposal known as Proposal 6 received overwhelming support from the community, with a majority of validators endorsing the plan.
The newly created TCY token has a fixed supply of 200 million. THORChain has confirmed that holders of TCY will receive 10% of the network’s revenue in perpetuity, ensuring a long-term incentive for those impacted by the debt restructuring.
To execute the distribution, each creditor will receive 1 TCY for every dollar of defaulted debt, effectively converting them into equity stakeholders within the THORChain ecosystem.
Additionally, to support market liquidity, THORChain’s core team plans to launch a RUNE/TCY liquidity pool with an initial $500,000 in liquidity, pricing TCY at $0.10 per token. This initiative is backed by a $5 million allocation from the treasury, aimed at ensuring price stability and market accessibility for token holders.
For users who previously held funds in THORFi’s Savers and Lending programs, their holdings will now be represented in TCY tokens instead of the original assets. While this provides a stake in the network’s future success, the timeline for potential recovery remains uncertain.
THORChain’s decision to issue the TCY token stems from a widening financial crisis that forced the platform to suspend its THORFi services on January 23. These services, which included lending and savings products, faced mounting financial instability, leading to an urgent need for restructuring.
According to reports, internal analysis revealed that the $200 million debt was linked to excessive leverage and risk exposure within ThorFi’s lending structure. As a result, THORChain faced a growing liquidity deficit, making it impossible to fully honor user withdrawals.
Rather than allowing the debt to spiral further, THORChain’s governance body opted for a debt-to-equity conversion, a strategy aimed at stabilizing the protocol’s balance sheet while offering affected users a long-term stake in its future revenue.
Meanwhile, THORChain is not the first blockchain project to face severe liquidity challenges. Over the past few years, several major firms have collapsed under financial pressure, with some undergoing complex restructuring processes.
FTX, once one of the largest cryptocurrency exchanges, filed for bankruptcy in November 2022 after a liquidity crisis exposed a $8 billion shortfall in customer funds. While bankruptcy proceedings are still ongoing, affected creditors continue to await repayments.
Similarly, Crypto lending platforms Celsius Network, BlockFi, and Voyager Digital also collapsed in 2022 due to liquidity crunches, leaving thousands of users stranded. Unlike FTX, both Celsius and BlockFi have since concluded their bankruptcy cases, with some creditors receiving partial repayments.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.
