BSC Lending Protocol Venus (VXS) to Deploy a Grant Program to Cover the Losses from Massive Liquidation
Amidst the increasing number of exploitations of the Binance Smart Chain-based DeFi protocols, Venus is the latest.
The lending protocol is one of the top projects on BSC with $2.52 billion in total value locked (TVL), down from $7.56 billion ten days back, as per DeFi Llama.
On the backdrop of crypto carnage, its native token XVS experienced a massive spike in its prices caused by large market orders and expectations on the new VRT; the Venus reward token airdropped to XVS and vXVS holders.
“These large tranches of orders, with the limited supply available that is unstaked, caused a huge fluctuation in market prices,” wrote Joselito Lizarondo, founder of Venus and CEO of Swipe.
Due to this increase in price, traders supplied and borrowed more collateral to continue to buy XVS, that too at a high margin, and as some traders started locking in profits, it caused a large string of market liquidations in the XVS market.
While the liquidations worked the same way at Venus as they do anywhere else, Lizarondo said the market volatility caused more slippage, lowering the price for the seized asset again.
“This causes a cascading liquidation problem. As more liquidations occur, the price goes lower, thus looping this event, until it reaches a bottom where there is nothing more to liquidate,” wrote the founder, adding that this was what happened with the XVS market in the Venus protocol.
While Chainlink, which provides the price feed, looked to be the one exploited here, it was the issue of the lack of liquidity with the $500 million market cap coin. Chainlink Community Ambassador noted,
“Chainlink price feeds accurately tracked the market-wide price of XVS/USD during this volatility. It was not an oracle issue; it was a liquidity issue from cascading liquidations.”
The incident resulted in over $200 million in DeFi liquidations and $100 million in bad debt. However, Lizarondo said that no funds were lost during this process. To rectify the negative balances, Venus will be deploying its grant program and utilizing XVS to cover the system shortfall. He added,
“This will not be sold into the market but rather either leveraged responsibly with the oversight of the Venus Team or OTC’d to a partner with a long-term hold agreement.”