I will soon be the not-so-proud owner of 19k TCY, compliments of the Thorchain lending scam going insolvent before the bear market even started. If I'm being honest, and I have been several times, I kind of deserved to lose everything on this play (in this case 0.25 BTC minus $8000), but there's still a small chance I come out on top and claw my precious monies back.
Thorchain launched its lending program back around the time that Blackrock was getting ETF approval for Bitcoin (over a year ago). The premise back then was "risk free loans" with no liquidation. Of course I was quick to call out this bullshit on several occasions:
@edicted/rune-moon-soon-zero-interest-zero-liquidation-loans-on-thorchain
Is this really a good idea? It's not though.
--- October 28, 2023
What's funny is back then everyone acted like it was actually risk free, but now they act as though they never acted that way. Classic degenerates.
But I plopped a quarter of a Bitcoin into the protocol anyway thinking okay it's a scam and a Ponzi but at least it will moon the token until the bear market starts. And it probably would have worked out that way had they kept raising the caps and leveraging up on debt, but the network was far more risk-averse than I anticipated. "Of course if Bitcoin goes up Rune will go up as well!" They squealed with glee. Yeah, didn't work out that way this time.
That obviously turned out to be a fatal assumption that I doubled down on when it was obvious the protocol was on the verge of collapse. At the end of the day I did it simply because I didn't want to pay back my $8000 loan yet. Still need to figure out how to capitulate and cut my losses, it seems.
But I still haven't officially lost this bet yet, as the TCY token will be launching in less than two weeks, and the value of my collateral is still priced around $103k: the price point that Bitcoin was at when redemption was frozen. It seems the most likely event now is not that I'll have actually lost money in USD terms, but rather that my "losses" will be greatly mitigated to opportunity cost.
The opportunity cost in this case was that Thorchain offered the ability to hold BITCOIN, and I no longer have BITCOIN; I'll have a TCY bail-in bag. As we all know a bet like that could flourish or expire depending on fate. A launch date of May 5th might actually be the perfect day to be airdropping a new "shitcoin" to the debtors. The market loves a new shiny thing, and a summer rally seems imminent. If we actually get a summer rally TCY will spike quite high from raw hype and surplus capital from other tokens, which would be quite good for me considering I've been bailed into the system for $19000 of bad debt.
And now would be a good time to point out that when I actually took the $8000 loan the 0.25 BTC was only worth $16k, meaning when the system collapsed the Bitcoin was worth over $25k... so I'm being credited more USD debt than the entire position was worth, even after the loan is paid off (which technically it is already paid off and no longer exists due to the short circuit freeze on the system).
In order for debtors of the lending program to be considered "paid back" in terms of how a bankrupt exchange like FTX would do it: price of TCY needs to hit $1, but will start at 10 cents to make sure nobody can frontrun the system and exit before others get the chance to. How many debtors will sell at a 10 cents on the dollar price point and immediately take a 90% loss? I'm guessing somewhere around 0%, but you never know. Maybe 1%. My better guess is that most will wait to see what happens, and it makes a lot more sense that price will get pumped on day one.
In order for the token to make logical financial sense with proper incentives, 10% of all Thorchain fees will be allocated to the token. This was an idea proposed by sister-chain Maya protocol because they already have this mechanic on their own network (minus the bad debt). The main LP token of MAYA is called CACAO, but the real-yield token of the MAYA network is the MAYA token, and it earns 10% of the fees. Thus far that token has been pretty popular within the small community, so we all have high hopes that TCY will perform similarly.
The truly interesting thing for me from a tokenomics standpoint are the free market mechanics of a yield farming token like this. Unlike DEFI 1.0, this yield is not being printed out of thin air. This is "real yield"; real profit generated from network fees just like any other exchange or similar business model.
The significance of this is, because the yield is divergent from the token and not guaranteed, it becomes variable based on supply and demand of the holders. For example, if TCY price is very low (10 cents) the yield on TCY is very high because the yield is based on how much money the network is earning overall in USD terms. So a price of 10 cent TCY is going to give x10 more yield than a price of $1 TCY.
Higher yield on TCY will incentivize more buying, pushing the price up, but pushing the price up lowers yield and demand, which in turn pushes the price down. It's free market mechanics like this that I find to be very interesting and completely sustainable, unlike most of the other garbage I've encountered in my crypto travels. It's mechanics like this that help stabilize an asset without the use of a stablecoin, which are tools that crypto certainly needs so we can one day finally divorce our toxic spouse known only as Fiat.
Going insolvent is an objectively bad situation to be in, but in retrospect it may be the best thing that ever happened to Thorchain, much like Hive views the hostile takeover to be a good thing. While such drama is happening in real time it feels like the worst possible outcome, but in retrospect the network becomes much stronger and antifragile in the wake of difficult trials and tribulations.
Thorchain has learned their lesson, and are now focusing on sustainable business practices rather than printing money like it's going out of style. One of the huge silver linings here is that this all happened before the bear market started, so a massive recovery is still possible instead of being stuck in a pit of despair for multiple years straight.
I'm fairly certain that the TCY implementation is going to be a screaming success in the long run for a couple of different reasons. First, it was the best solution for getting out from a rock and a hard place. But more importantly the tokenomics create a stabilizing effect and actually employ mechanics that legacy finance can get behind.
Stock market investors (especially dividend investors) are notorious for bashing crypto for not having measurable value in the way that stocks and real estate do. TCY introduces a system that the old-school investors can actually understand: real-yield and real dividends that come from real profits. The value of TCY can directly reflect the value of the Thorchain network similar to how they believe that a stock price can reflect the value of the company (or how rent is viewed as "passive income"). Except in this case it's even better because an investment in TCY will be direct, transparent, and uncensorable profit-sharing.
