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THORChain On-Chain Activity Hits Record Highs – Will RUNE Price Follow Suit?

Last Updated March 19, 2024 11:25 AM
Valdrin Tahiri
Last Updated March 19, 2024 11:25 AM
By Valdrin Tahiri
Verified by Peter Henn

Key Takeaways

  • THORChain increased collateral capacity by burning 60 million RUNE tokens.
  • On-chain activity skyrocketed, with both real volume and Total Value Locked reaching all-time highs.
  • Will the RUNE price also reach a new all-time high, or is the 350% increase required to tall a task?

Amid THORChain’s strategic moves, it has recently burned 60 million RUNE tokens. The move unlocked $150 million in the collateral cap within its lending protocol. The burn, reducing the total supply by 12%, reflects a broader strategy to bolster liquidity and lending capabilities.

However, as on-chain activity surges to unprecedented highs, questions arise about the potential impact on RUNE’s price and the protocol’s resilience against market turbulence.

THORChain Increases Collateral Cap

On March 8, THORChain announced it burned 60 million RUNE  from its Standby Reserve . This was done to raise the collateral cap in the lending protocol. The burn represented a 12% reduction in the total supply. However, since the supply was taken from the Standby Reserve, it was not part of the circulating supply.

More specifically, the cap of the lending protocol  is devised so that it can use one-third of the RUNE burned as collateral . Therefore, the 60 million RUNE, worth $450 million at today’s prices ,resulted in a $150 million increase in the collateral cap.

Since the cap rose, the amount of BTC available as collateral has more than doubled, rising from 400 to more than 1,000. Meanwhile, the amount of ETH that available for lending has increased  nearly four times, from 4,000 to 15,984.

Interestingly, the THORChain loan seems to work as more of an in-the-money option rather than a loan. A user that gives one Bitcoin as a loan receives 50% cash and the option to buy one Bitcoin  for the same amount of cash.

While the protocol does not have a risk of liquidation, it is possible for the collateral to be locked . This can happen if the BTC-RUNE (or ETH-RUNE) price undergoes a massive divergence and there is an increase in redemptions.

In turn, mass redemptions would cause the RUNE price to fall and the drop in price would result in a demand for more redemptions, causing a death spiral similar to that of LUNA.

On-Chain Activity Spikes to New Highs

Real volume notably increased after the collateral cap rose. THORChain’s real volume reached an all-time high of $3.12 billion the week of the burn and to yet another all-time high of $4.53 billion the next week. The values dwarfed the previous all-time high of $2.13 billion in March.

THORChain Real Volume All-Time High
THORCHain Real Volume: Credit – Messari

In addition to real volume, the Total Value Locked (TVL)  spiked to an all-time high of $1.57 billion on March 13 but has since fallen to $1.13 billion, below the previous all-time high of $1.32 billion in April 2022.

It is possible that decrease occurred as a result of the drop in the RUNE price since March 13. A large portion ($762 million) of the TVL in the protocol comes from the staked RUNE.

Can RUNE Reach New All-Time High?

In line with the TVL drop, RUNE reached a high of $11.46 on March 13 and has fallen since. The value was the highest price since March 2022. Before the drop happened, there were bearish divergences in both the RSI and MACD (green line).

These divergences happen when a momentum decrease accompanies a price increase, and often signify a top, since momentum does not support the price increase.

Can Rune Price Reach New All-Time High?
RUNE/USDT Daily Chart: Credit – TradingView

However, the price action and wave count suggest that RUNE will reach a new all-time high this cycle. The price action shows that RUNE broke out from a long-term resistance trend line after three attempts (red icons). The trend line had existed since the all-time high.

The wave count also predicts an increase, stating that RUNE is in wave three of a five-wave upward movement. If wave three has the same length as wave one, the price will reach a new all-time high of $35.56. This would represent an increase of 380% from the current price.

In any case, the divergence could cause a further drop toward the closest support at $6.30. A horizontal support area and the previous descending resistance trend line create the support. Then, RUNE can resume its previous upward movement.

Increased Interest Can Lead to New RUNE Highs

To conclude, there is an increased interest in THORChain’s lending protocol after the increase in the collateral cap. This protocol is not without its risks, especially if the RUNE price does not appreciate. The outlook for RUNE is positive in the long-term, though the continuing of the short-term drop is possible.

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