THORChain has officially launched its groundbreaking lending protocol, introducing a novel financial model that redefines decentralized borrowing. Unlike traditional DeFi lending platforms, this new system offers no interest, no liquidations, and no maturity dates—a combination previously thought impossible in secure, decentralized finance. In this comprehensive guide, we break down how the protocol works, its core mechanisms, risk controls, and long-term implications for both users and the broader ecosystem.
How THORChain’s Lending Protocol Works
Users can now deposit native Layer 1 assets—starting with BTC and ETH—into the THORChain network and borrow TOR-denominated debt. TOR is an internal, dollar-pegged stablecoin used solely for accounting within the protocol. It is not tradable or holdable by users.
The loan amount depends on the collateralization ratio (CR), which ranges between 200% and 500%, adjusted dynamically based on market conditions. For example, with a 300% CR, a user depositing $300 worth of BTC could borrow up to $100 in TOR debt.
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Crucially:
- No interest accrues on outstanding debt.
- There are no forced liquidations, even if asset prices fluctuate.
- Loans have no expiration date—they can remain open indefinitely.
Repayment is flexible: users may repay any portion of their debt at any time after a minimum 30-day period. However, full collateral recovery only occurs once the entire debt is cleared.
Where to Use the Lending Protocol
Currently, users can open, manage, and close loans through:
- THORSwap
- Lends
- THORChain.net Dashboard
- Nine Realms Lending Dashboard
Additional interfaces will be integrated over time to improve accessibility and user experience.
Core Design Principles
THORChain’s team prioritized three key objectives when designing the lending mechanism:
- Minimal Cognitive Load
The interface and logic are streamlined to make borrowing intuitive—even for non-experts. - Scalable Security
All collateral remains secured within the protocol's consensus layer, backed by economic incentives and slashing conditions. - Controlled Risk Exposure
The system limits rapid debt growth through dynamic caps and employs a circuit breaker to halt lending if systemic risks arise.
These principles ensure that innovation doesn’t come at the cost of safety or sustainability.
Understanding TOR: The Internal Pricing Oracle
Instead of relying on external price feeds or third-party stablecoins, THORChain uses TOR, a synthetic dollar-equivalent unit derived from the median price of all stablecoins available on its network—including USDC, USDT, DAI, and others.
This design ensures resilience: even if one or more stablecoins depeg, TOR remains functional as long as at least one stablecoin pool retains value.
To prevent manipulation during high volatility, TOR utilizes a virtual pool with adaptive depth. When price swings occur, the virtual liquidity contracts, increasing slippage for loan transactions. This discourages adversarial behavior and protects the system.
For optimal results, users should initiate or close loans during periods of low volatility.
Scaling Safely: The Loan Ceiling Mechanism
The total borrowing capacity is tied to THORChain’s RUNE supply, capped at 500 million tokens. However, approximately 15 million RUNE have already been permanently burned due to un-upgraded BEP-2 and ERC-20 versions.
To enable safe scaling, only one-third (about 5 million) of these burned tokens are allocated toward initial lending capacity. This buffer ensures that even if RUNE depreciates significantly against BTC/ETH and all loans are repaid simultaneously, the hard cap won’t be breached.
As more RUNE is burned over time—through transaction fees and loan operations—the lending ceiling can expand sustainably.
Built-In Risk Protections: The Circuit Breaker
If RUNE experiences a sharp decline relative to major collateral assets like BTC or ETH, repaying loans could lead to net inflation of RUNE supply—potentially approaching the 500 million cap.
To prevent this, the protocol includes a circuit breaker:
- New loans are paused.
- Lending functionality is temporarily disabled.
- RUNE inflation stops.
- The THORChain RESERVE fund covers remaining obligations.
All other network functions continue operating normally. Once conditions stabilize, a predefined recovery path allows the system to resume lending securely.
Why No Interest? No Liquidations? No Expiry?
At first glance, eliminating these standard features seems risky. But THORChain’s model turns traditional logic on its head:
No Interest
Interest incentivizes repayment. Here, the goal is the opposite: encourage long-term or permanent debt. Zero interest makes holding debt attractive, converting user deposits into permanent protocol equity (in the form of RUNE IOUs).
Users pay only slippage-based fees when opening or closing loans—fees that burn RUNE and benefit all holders.
No Liquidations
Liquidations create friction, require constant monitoring, and harm user experience. Instead of liquidating undercollateralized positions, THORChain accepts minor RUNE inflation (up to ~3%) before triggering the circuit breaker. This trade-off enhances usability while maintaining systemic safety.
No Expiry Date
Perpetual loans allow THORChain to convert external capital (like BTC and ETH) into internal equity. For instance:
- $1B in deposited collateral at 300% CR → ~$333M in issued debt.
- Remaining $667M acts as net buying pressure on RUNE.
This strengthens economic security without forcing eventual sell-offs.
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FAQ: Common Questions Answered
Can I partially repay my loan?
Yes. Partial repayments reduce your debt balance, but you cannot withdraw any collateral until the full debt is settled.
What happens if I overpay?
Excess payments are credited toward your next loan, reducing future borrowing costs.
When is the best time to open or close a loan?
During periods of low network volatility. High volatility increases slippage due to reduced virtual pool depth in the TOR oracle.
Will I always get back my full collateral?
Yes—minus slippage fees incurred during loan initiation and closure. Fees are lower in stable market conditions.
When will more collateral types be supported?
BTC and ETH are live now. Support for BNB, BCH, LTC, ATOM, AVAX, and DOGE is technically ready—validators need only enable them via mimir commands.
What assets can I use to repay debt?
Any asset supported by THORChain. The repayment amount is swapped into TOR via the network’s native swap mechanism.
Who Bears the Risk? The Role of RUNE Holders
Every loan has the entire THORChain protocol—and all RUNE holders—as its counterparty. When loans open or close:
- RUNE is burned or minted accordingly.
- All holders experience dilution or concentration effects.
- Liquidity providers earn fees from swap operations involved in repayments.
This shared risk model aligns incentives across the ecosystem: stronger borrowing demand increases protocol-owned liquidity and security.
How Lending Boosts THORChain’s Growth
THORChain enforces strict economic security: validator bond value must exceed total vault assets (in RUNE terms). Normally, growth halts when RUNE reserves are exhausted.
Lending changes this:
- Opening a loan removes RUNE from pools and burns it.
- This reduces circulating supply and increases scarcity.
- More external capital (BTC/ETH) can be safely onboarded.
- Network TVL grows without compromising security.
In essence, lending turns user deposits into direct upgrades to protocol resilience.
Final Thoughts
THORChain’s lending protocol represents a bold leap in DeFi innovation. By removing interest, liquidations, and deadlines, it creates a frictionless borrowing experience while strengthening the underlying economy.
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