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Last updated: Aug 21, 2023
The protocol offers lending and borrowing solutions, enabling users to borrow assets against collateral as well as to supply liquidity to earn variable APY. In addition, Venus allows users to mint VAI, USD-pegged stablecoins from the supplied collateral.
Venus is governed by Venus native token XVS, which can be used to vote on important protocol-related decisions.
Venus enables users to supply various cryptocurrencies or stablecoins into Venus pools and earn returns from the interest rates charged to borrowers. The interest rates are variable and defined by the yield curve of the particular token market.
A user that supplies crypto assets into Venus pools becomes a lender for the protocol. The deposited funds may also be used as collateral to lend assets from the protocol. Once the assets are deposited into Venus, the protocol issues a synthetic vToken in return, which is the v-wrapped equivalent of the deposited token (vETH, vBTC, etc.).
These vTokens are the only acceptable tokens to redeem the underlying collateral. The redeemed tokens can be stored in any wallet that supports BNB Smart Chain or they can be used to trade against other tokens. Users can withdraw their supplied assets at any time if the protocol balance is positive.
Users wishing to borrow assets from Venus, have to provide collateral that will be locked. These assets must make up to 75% of the amount users want to borrow. Typically collateral ratios are set between 40% and 75%. These collateral ratios are determined by the protocol and are controlled by the community. However, in case the loan-to-value falls below 75%, or whichever collateral ratio a certain asset has, the loan will be subject to liquidation. If liquidation occurs, users will have to pay a 10% liquidation fee, 5% of which will go to the liquidator and 5% to the Venus treasury. In case the user wants to return the borrowed asset, it is first required to pay for both the borrowed balance and the interest added.
Using the deposited assets as collateral, the Venus Protocol also enables users to mint synthetic stablecoins VAI, while also earning interest for those deposits. To maintain VAI’s peg of 1:1 to the US dollar, it relies on a basket of collateral and the stability fee which is paid to the users whenever a new VAI is minted. The fee size is variable depending on VAI supply. When the VAI peg falls below $1, it means that its actual demand is less than the market supply, and the Stability Fee will be increased to recover liquidity; when the price of VAI is higher than $1, it means that its actual demand is greater than the supply, and the Stability Fee needs to be reduced.
Venus Protocol fee system is not structured, as the fee of each transaction varies depending on the exchange, demand, and other variables.
Venus also has a Vault section, which is the staking mechanism. Users holding the Venus native token XVS can stake them into XVS vault to earn more XVS and receive voting rights and income distribution of the protocol. XVS staked in the vault will be subject to a 7-day unlock period and cannot be used as collateral for borrowing.
Users who have minted VAI also have the opportunity to earn XVS if they deposit those synthetic stablecoins into the VAI vault.
As the first step to start using the Venus app, users need to connect the wallet containing some BNB to pay for gas fees. Venus Protocol wallet support includes Metmask, Coinbase wallet, Trust wallet, WalletConnect, and Binance Chain wallet.
On the main page of Venus, users will see a variety of markets available on the dashboard to lend and borrow assets. To supply assets, the user has to click on ‘Supply market’ and choose the preferred one from the list. Once chosen, it is necessary to click on it, enter the number of tokens to be deposited in the pop-up window and click ‘Supply’. The transaction has to be confirmed in the wallet by paying the gas fee.
If users want to borrow using the deposited assets as collateral, they will have to authorize it by clicking the button ‘Collateral’. Once done, users can navigate to the ‘Borrow Market’ tab and borrow any crypto asset. Users may choose to withdraw their assets at any time, as long as they are not being held as collateral for a loan.
For borrowing, the user needs to navigate to the Borrow market section and select the desired asset to be borrowed from the list. The pop-up window will display the interest that the borrower has to repay for taking a loan, the borrow balance, and the borrow limit. To view the maximum amount of assets that can be borrowed, it is necessary to click on ‘Safe Max’. The user needs to enter the desired amount of assets to be borrowed, click ‘Borrow’ and confirm the transaction by paying the gas fee.
To repay the loan, user needs to select the asset to be repaid and click the ’Repay Borrow’ tab. The loan can be repaid in one lump sum or in smaller batches. Whenever the user repays a part of the debt, its borrow limit will decrease, helping to control the liquidation.
To mint stablecoins, the Mint/Repay VAI tab should be selected. Users can click ‘Safe MAX’ and this will automatically calculate the maximum amount of VAI that can be issued based on the available collateral. Users may also select a lower amount to be minted. As the final step, it is required to click ‘Mint VAI’ and confirm the transaction in the wallet.
XVS is the Venus Protocol native token with a maximum supply of 30 million. Holders of XVS can stake their tokens to receive the allocations of the protocol’s income and vote on all kinds of key initiatives related to Venus.
According to the protocol white paper, the XVS is the fair launch cryptocurrency and no tokens were allocated to the project team, founders, and developers. 20% of the tokens was allocated to the Binance Launch Pool project; 1% was reserved as grants for the BSC ecosystem. The remaining supply will be unlocked via mining by the protocols’ users gradually within four years, after the Binance Launch Pool event at a rate 0.64 XVS per block (18,493 per day).
The protocol has also introduced a Venus Reward Token (VRT) in 2021 in order to gradually lower the XVS inflation rate. VRT has a total supply of 30 billion and will be distributed to users over the period of four years, while the XVS emission rate is to be gradually reduced and stretched out over a period of eight years. All of this is subject to Governance changes and on-chain proposals.
VRT has no governance feature, can be deposited in the newly established VRT vault to obtain 3% APR in return paid out in VRT, or it can be exchanged for XVS at a fixed rate in the new Convert VRT section of the Venus app.
The protocol has integrated Chainlink as its oracle solution, in order to ensure Venus is always fully collateralized and referencing fair market prices.
Venus protocol was founded and developed by the Swipe project team, whose founder and CEO is Joselito Lizarondo. Swipe is a global issuer of cryptocurrency debit cards.
However, in 2021, Lizarondo has announced that the Swipe team will cease working on the Venus project, as the protocol will be run by a newly established Venus Council assembled by prominent BSC and ecosystem players. The current team is anonymous.
In May 2022, Venus Protocol suffered a $200-million liquidation, due to price manipulation of its XVS governance token that led to a $100-million of bad debt accumulation. The reason for the incident has not been determined with certainty, with some even accusing the Venus Protocol team as the culprit of the price manipulation.
The Venus Protocol exploit started on May 18, when XVS’s price shot up from $80 to $145 in around three hours, this led to a huge amount of loans borrowed during this time, with XVS as collateral. Ten days earlier the Collateral Factor on the platform was increased from 60% to 80%. While people were selling XVS to secure their profits, in the next four hours XVS’s price declined sharply to its former price level of $80, which triggered the liquidation events later leading to the $100-million of bad debt that Venus still hasn’t recovered.
On the next day, Joselito Lizarondo, Venus’s founder, wrote a Medium article about the incident trying to convince the community all funds are safe and there have been no attacks on the protocol. According to him, the price spike was caused by large market orders and expectation on the new VRT token - Venus’ new reward token that was just about to launch. The Medium article was later deleted by its author.
According to The Block’s Research Director Igor Igamberdiev, the incident was caused by the Chainlink oracle reporting the price of the token as nearly double. However, one Twitter user going by the name @InsiderVenus wrote a blog post accusing the Venus team of price manipulation and providing evidence for it. According to them, there was one main account involved in the incident, which received high amounts of XVS from a Binance hot wallet, that were later supplied to Venus in order to increase their collateral and borrow more BTC or ETH. The borrowed funds were transferred to Binance, and the whole scenario was repeated several times to add up the total amount of XVS coming into the account to around 912,219 tokens. The suspicion expressed by the self-proclaimed Venus insider, is that the funds transferred to Binance were used to buy more XVS - increasing its price and allowing more funds to be borrowed on Venus. As soon as the account stopped transferring funds to Binance and buying more XVS, the market declined abruptly. Since the price declined so much, the amount sold was not able to cover the original loan which also triggered cascading liquidations. At the end of the fiasco, the account was left with a 2,000 BTC and 10,000 ETH debt worth more than $100 million at the time of the attack, which is presumed to never be paid back to Venus.
The connection between the account blamed for the exploit and the Venus team is that they used the Binance account in April 2021 to buy back $3.5 million worth of XVS. The reserve wallet address of Swipe - a wallet used by the Venus team, allegedly also made deposits into this particular Binance account in the past.
The author of the blog article has made a disclaimer that following its publications, they were contacted by the Venus team to discuss it and try to clarify the author’s understanding, however after the conversation several raised points still remain, while the author waits to be provided with an update on some of the questions asked.
Venus has recently partnered with Terra making LUNA and TerraUSD available for lending and borrowing; as well as with Mercor finance, which allowed the new partner to supply liquidity to the Venus Protocol.
Venus is working towards becoming a multi-chain protocol and plans to expand on Ethereum, Avalanche, and Solana. Venus is also planning to launch undercollateralized loans and accept NFTs as collateral.
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