Freyr DAO: A New Lifeline for Thorchain’s Debt Crisis?

The Thorchain community is still grappling with the fallout of its debt crisis, and the future of both the protocol and its financial arm, ThorFi, looks increasingly uncertain. What started as a bold experiment in decentralised finance is now facing a reckoning, with lenders and savers left stranded and liquidity providers questioning the viability of the system. The debt overhang has placed immense strain on the network, and trust has been eroded as repayment plans remain tangled in complexity.

Now, another proposal has entered the fray—one that aims to restructure obligations while keeping Thorchain’s core mechanics intact. The Freyr Lending DAO, put forward by KingMaker, suggests an alternative route: a separate, self-sustaining entity that will compensate affected users without diluting existing Thorchain stakeholders. Instead of relying on new liquidity or unpredictable token emissions, the plan introduces a revenue-sharing model where a portion of Thorchain’s fees would go toward accumulating Bitcoin and supporting a new lending platform.

The proposal hinges on the creation of Freyr, an independent DAO designed to handle repayments through a carefully structured revenue model. Unlike previous suggestions, which sought to unwind ThorFi’s debt through direct payments or new token issuance, this plan sets up a separate protocol that will receive 10% of Thorchain’s ongoing fees. These funds will be used to steadily accumulate Bitcoin, mirroring the long-term accumulation strategy employed by MicroStrategy.

Lenders and savers affected by the collapse of ThorFi won’t receive immediate reimbursement in their original assets but will be allocated a new token—Fé. The value of Fé will be tied to the growing BTC reserves and the lending revenue generated by the new protocol. The idea is that as the Freyr DAO expands and accumulates more capital, the value of Fé will appreciate, allowing creditors to recover their losses over time.

Crucially, this approach avoids direct dilution of Thorchain’s native token, RUNE, which has been a sticking point in previous repayment discussions. Liquidity providers and node operators, who have already suffered losses, won’t bear additional burdens through forced redistribution. Instead, they will continue to earn fees as normal while the new DAO operates independently on a fixed share of revenue.

Structurally, Freyr will function as a decentralised lending protocol, drawing inspiration from AAVE’s model while integrating directly with the Thorchain ecosystem. Lenders and borrowers will be able to participate in this new system, and a portion of the generated revenue will be reinvested into the Freyr treasury, further growing the Bitcoin reserves backing the Fé token.

Governance will be handled by Fé holders, who will have decision-making power over treasury allocations, lending parameters, and any future protocol developments. The proposal suggests a structured governance framework, ensuring that funds are deployed transparently and that risk management strategies are enforced to maintain stability.

The idea of a separate entity handling ThorFi’s obligations has its advantages. It shields Thorchain from direct financial strain, preventing the need for drastic measures such as forced buybacks or excessive token inflation. It also introduces a new lending service that could enhance the overall ecosystem’s utility, attracting new participants while addressing the crisis.

However, there are risks. The success of the plan depends heavily on adoption—if the lending platform fails to gain traction, the treasury may struggle to generate sufficient returns to make meaningful repayments. Additionally, the reliance on Bitcoin as a reserve asset means that market volatility could affect the perceived value of Fé, potentially complicating the recovery process for creditors.

Regulatory concerns also linger. With increasing scrutiny on DAOs and token-based governance structures, ensuring compliance in key jurisdictions will be a challenge. The proposal acknowledges the need for a strong legal framework to prevent future roadblocks but does not provide concrete details on how these concerns will be addressed.

Despite these uncertainties, the proposal has sparked debate within the Thorchain community. Some see it as a pragmatic solution that aligns incentives without destabilising the broader network. Others remain sceptical, questioning whether affected users will accept a long-term recovery mechanism rather than a more immediate resolution.

The broader issue remains: Thorchain’s economic model has long been under strain, and the collapse of ThorFi has exposed structural weaknesses. Liquidity providers have struggled to see sustainable returns, and the protocol’s reliance on new deposits to maintain operations has raised concerns about long-term viability.

By shifting debt obligations into a new entity with a self-sustaining revenue model, Freyr DAO represents an ambitious attempt to untangle the mess without causing further damage to the ecosystem. Whether it can deliver on its promises remains to be seen, but for those caught in the ThorFi collapse, it might be the last viable option on the table.

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Maria Irene
Maria Irenehttp://ledgerlife.io/
Maria Irene is a multi-faceted journalist with a focus on various domains including Cryptocurrency, NFTs, Real Estate, Energy, and Macroeconomics. With over a year of experience, she has produced an array of video content, news stories, and in-depth analyses. Her journalistic endeavours also involve a detailed exploration of the Australia-India partnership, pinpointing avenues for mutual collaboration. In addition to her work in journalism, Maria crafts easily digestible financial content for a specialised platform, demystifying complex economic theories for the layperson. She holds a strong belief that journalism should go beyond mere reporting; it should instigate meaningful discussions and effect change by spotlighting vital global issues. Committed to enriching public discourse, Maria aims to keep her audience not just well-informed, but also actively engaged across various platforms, encouraging them to partake in crucial global conversations.

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