THORChain (RUNE), the liquidity network, has introduced a new feature that allows users to obtain loans by collateralizing their Tier 1 (L1) assets such as Bitcoin (BTC) and Ethereum (ETH). Loans are disbursed in the form of TOR, a stablecoin equivalent to USD.
The introduction of this lending feature opens up new opportunities for financial participation, as users can borrow money without having to worry about interest, liquidations or expiration. The loan process is designed in a user-friendly and simple manner to minimize cognitive load.
The amount of loans borrowers can obtain depends on market conditions and is determined by collateral ratios of between 200% and 500%. One of the main advantages of the THORChain Credit Protocol is the absence of interest charges, which means borrowers can hold their credits for a longer period of time, increasing the value of the protocol.
Another feature of THORChain's credit system is the absence of liquidations. In the traditional lending model, collateral is subject to enforcement when its value falls below certain thresholds. In THORChain, collateral functions as equity and is not liquidated. This makes the experience more user-friendly and there is no need to constantly monitor asset prices.
The minimum duration of loans is 30 days and borrowers have the flexibility to repay at any time after this period. Partial repayments are also possible and the release of guarantees only occurs when the debt is fully paid.
In order to increase security and protect against inflation, THORChain has implemented a performance switch system. If the price of the THORChain token (RUNE) drops drastically relative to collateral such as BTC and ETH and risks causing net inflation, new credits are paused and crediting is disabled. The network reserve then covers the payment of the remaining guarantees.
Initially, THORChain's credit system supports BTC and ETH collateral, but there are plans to expand support to other layer 1 gas assets such as Binance Coin (BNB), Litecoin (LTC ), Avalanche (AVAX) and DOGE. This will further diversify credit possibilities and cover a wider range of users and assets.
The introduction of the credit function represents an important step by THORChain to expand funding possibilities within its liquidity network. Although the native RUNE token has seen a decline over the past 24 hours, it has seen significant gains over the past seven and fifteen days, indicating growing interest in THORChain and its credit feature.