Battle Scars
Making sense of the collapse of RUNE, Prop 6, and my own plan of attack.
"Other than that, Mrs. Lincoln, how was the play?"
In my time playing the crypto ponies, I’ve experienced my share of rugs, hacks, and outright scams. These are almost rites of passage in the casino that is digital asset ‘investing.’
Personally, I’ve been in tokens that have fallen by 99.9%. I’ve been in a ridiculously obvious founder rug. And I’ve even had a self-custody wallet get hacked and drained of funds.
It hasn’t been all bad though, I read the tea leaves and was able to pull funds from Celsius shortly before it collapsed. As I wrote then and can reiterate now, the allure of yield is hypnotic. That was true in 2022 and it's true in 2025 as well. Add a lending/saving angle to what was already a very useful cross-chain DEX protocol? What could go wrong?
Turns out, a lot.
I’ve avoided talking about the absolute collapse of THORChain’s native token (RUNE-USD) - currently down over 80% in two months - because I didn’t want to speculate on outcomes until there was a clear path forward. Today, we appear to have that path. For those who haven’t been keeping up with this (likely most of you), here’s the short version of the story:
Late last month, THORChain halted withdrawals from it’s lenders and savers program. This is a program that I’ve very much participated in and the assets that I deposited into ‘THORFi" are now frozen. I’m not getting them back.
Simultaneously, the market has re-rated the RUNE token by nearly 90% in a matter of just a few weeks as participants started to stiff out the problem (I did not sell any RUNE, personally)
I’m not going to try to reinvent the wheel here, I think The Block’s Vishal Chawla does a nice job explaining the underlying issue:
This issue originated from substantial bitcoin borrowings at a time when prices were considerably lower than they are currently, needing the minting of additional Rune to cover these obligations. Compounded by a lack of liquidations within the protocol, there are concerns that this could potentially trigger a large drop in Rune’s value and diminish THORChain’s purchasing power, potentially mirroring the Terra/Luna collapse of 2022.
Thorchain-based synthetic assets, or synths, derivative tokens that mirror the value of cryptocurrencies like bitcoin and ether, are also under scrutiny. These assets are collateralized by liquidity pools that balance the original asset and Rune, THORChain’s native token.
Though I still think there are some important differences, THORChain’s collateralization model has some resemblance to that of Flexa - which I’ve written about before:
In spite of some similarity to Flexa, I’ve been bullish RUNE going back to the BlockChain Reaction days and have participated in the ecosystem as a RUNE holder, LP, and THORFi saver depositor. All told between the capital decline in RUNE, the frozen THORFi funds, and the negative real return of the LP position; this situation has resulted in a roughly 20% hit to my ‘on-chain’ crypto portfolio going back to the beginning of December.
This one hurts.
Mr. Optimist
Look, I’m not going to lie; this sucks. But there’s an important point to keep in mind in spite of the lending/savers element of the protocol not working out; the DEX is still functioning entirely without issue:
The 921.5k protocol swaps during the month of January were the highest single month total for THORChain swaps since May 2024. The long term trend in monthly swap fees is incredibly positive with January serving as the fourth consecutive month with at least $3 million in protocol swap fees:
And the total addressable market for DEX swaps continues to grow:
DEX protocols did $457 billion in swap volume in January - a record. 20% of all crypto volume came via DEXes - more than double DEX volume share from January 2024.
I’ll reiterate; it’s bad that THORFi savers vaults have paused withdrawals. There have clearly been problems with the construction of THORChain’s secondary and tertiary protocol functions. But the primary purpose of THORChain - the cross-chain DEX - has continued to operate normally in spite of everything going on within the broader community. And the DEX has always been the reason to be bullish THORChain as it is indeed one of the very real innovations in the digital asset space.
Proposal 6
I believe there were 8 different proposals to right the ship at THORChain. The community has agreed on ‘Prop 6.’ Here are the important details of that proposal:
Retire THORFi outright
THORFi savers debt is being tokenized at a 1:1 ratio with a new equity coin (TCY). For instance, if a THORFi saver had $10,000 deposited in the Bitcoin savers vault, they have a claim on 10,000 TCY tokens
TCY holders will receive 10% of network revenue in perpetuity
TCY holders can sell their debt claims in the open market if they want to cut their losses rather than wait around for total return (TCY appreciation + network revenue payments) to equal $1
I think this was the best path forward, personally. It allows the network to grow its way out of the problem. Furthermore, issuing a new token that grants holders a 10% perpetual claim on network fees is actually a great way to bet on THORChain’s survival if a speculator with outside capital sees it as an opportunity. Rather than buying RUNE, a trader can buy TCY and treat it like a distressed debt position.
My Approach
Obviously, there is no getting my in-kind savers deposits back. So there’s an opportunity cost with any appreciation of those crypto coins on top of having to wait out a presumptive TCY total return above $1. I did end up removing my LP position shortly following the halt of savers vault withdrawals. My purpose for this was to reduce exposure to RUNE. I have since taken that LP capital and added to my RUNE position.
Very degenerate of me, yes. But I see it as the better way to play a recovery in THORChain versus keeping the liquidity position on since half the LP position is a synthetic RUNE long anyway. I am not planning on relinquishing my TCY claim. I actually like the idea of platform revenue payouts in perpetuity. Frankly, TCY might be one of the higher risk/higher reward ways to play a longer term THORChain bet.
I’ll leave you all with some thoughts
These disclaimers/disclosures at the bottom of my posts are important and I put them there for a reason. I mean it when I say “digital trinkets could all go to zero.” This is a highly speculative space that is dominated by ‘assets’ that do absolutely nothing. Even the assets that do have a legitimate use are often ridiculously overvalued compared to applicable peer stonks in the US equity markets. This is not a space for the faint of heart and if you get queasy at the thought of a 90% draw-down, just stay out of it and sleep easy.
I think this is a reminder that those of us who find these ideas to be valuable should be playing the long game. Narratives come and go. NFT avatar pictures have come and gone. DeFi protocols will come and go. The memecoin mania will come and go. The long term idea of an on-chain future remains. It is certainly not a guarantee that digital asset investments will ever deliver on the promise of true decentralization. But it’s a future that I still believe is worth fighting for.
Be responsible. But don’t be afraid to shoot your shot either.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. Nobody cares about your money as much as you do; that includes your hired help, TBTF analysts, or any newsletter author regardless of bull/bear bias. Learn these markets. Form your own opinion. And trust yourself over any self-proclaimed gurus or experts.
Sorry for your loss, Mike. Watching funds go to Money Heaven can definitely ruin your day.