The largest DeFi money market on Binance’s blockchain, Venus (XVS), finances a curious book. A string of events put it at risk of overexposure to assets from hacks and bridge exploits. For example, Venus considers some $250 million worth of stolen BNB to be part of its so-called total value locked (TVL).
Today, it claims to possess roughly $950 million of TVL within Binance’s Smart Chain ecosystem, inclusive of those illegitimate funds. While large, the figure is 85% below its May 2021 high of $7 billion.
Community members have accused Venus Protocol of hiding some of its liabilities, as well.
Venus only operates in the Binance ecosystem, but that hasn’t stopped it from issuing a flurry of tokens. Venus is as complicated as the labyrinth of companies that compose Binance itself.
- Venus has no less than three proprietary tokens: XVS, VRT, and VAI.
- It also issues four wrapped versions of third-party stablecoins: vUSDC, vBUSD, vUSDT, and vDAI.
- It also wraps at least a dozen popular assets, including vBTC, vETH, vLTC, BNB, vDOGE, vXRP, and many others.
Some of the bad debt that finances Venus
In addition to holding the multi-hundred million dollar proceeds of one of the world’s largest thefts, Venus has also collected other forms of tainted collateral.
All the way back in 2021, the main Venus token (XVS) whipsawed within six hours and caused $200 million in Venus Protocol liquidations. Specifically, on May 18, XVS round-tripped from $76 to $143 to $76. Those liquidations left it with $100 million in bad debt. Nowadays, XVS is trading under $6.
Most of that bad debt used XVS as collateral to take loans from Venus. Debtors simply defaulted on their XVS-backed loans altogether, escaping with the loaned finances rather than reclaiming their XVS posted as collateral.
The Block researcher Igor Igamberdiev suspected market manipulation involving large XVS holders who had posted their tokens as collateral for significant Tether, USD Coin, and Binance USD “loans” that they never intended to repay.
- Venus’ third quarter 2022 report indicated 1,619 insolvent accounts worth $51.3 million but otherwise didn’t provide a breakdown of liabilities.
- It remained tight-lipped on outstanding financial obligations, disclosing a “long-lasting issue” with something called Autofarm that it admitted was 15% unresolved.
- Most concerningly, Venus hasn’t released an official financial report to its community for the last two quarters (Venus simply pointed to a third-party Q4 report by an independent Messari researcher, which overlooked Venus’ hundreds of millions of dollars in stolen funds from the BNB Smart Chain hack).
Some insiders are already fleeing to safety. On March 2, someone withdrew $21.4 million of Binance-peg stablecoin BUSD from Venus and deposited all of it into Binance. On March 11, a wallet labeled Justin Sun redeemed 1 million BUSD Binance-peg USDC from Venus.
Venus founder Joselito Lizarondo initially attempted to put a positive spin on the whipsaw of May 18, 2021. He noted that the protocol worked as intended and pointed out attempts to generate Venus activity in order to qualify for the Venus Reward Token (VRT) airdrop for XVS holders as of its May 17, 2021 snapshot date.
$220 liquidation price on BNB
To sum up: In February 2023, a researcher predicted Venus (XVS) could be in trouble again if any finances caused BNB to drop below $220. (In a close encounter, BNB recently dipped to $265 on March 9, 2023.) That price level, which rises slowly over time, could have triggered one of the largest auto-liquidations in the history of DeFi.
That researcher cited the same BNB bridge exploit that fraudulently minted 2 million BNB on October 7, 2022. The exploiter deposited 900,000 BNB into Venus Protocol to use as loan collateral and withdrew USDT, USDC, and BUSD.
It’s possible that Venus Protocol might hide off-balance-sheet or otherwise negative financials in its accounting. It was hit hard by bad loans in May 2021 as hackers used its lending platform to launder funds after one of the largest crypto thefts in history.