Against the backdrop of a market correction, the liquidation volume in the lending DeFi protocol Venus on Binance Smart Chain (BSC) reached $200 million.
Please read our Venus XVS Liquidation Incident report. All funds are safe and the protocol is safe. Thank youhttps://t.co/27x75gc3q8
— Venus (@VenusProtocol) May 19, 2021
Not long before the cascade of liquidations, the native token XVS surged, with one of the main drivers being the Venus Reward Token (VRT) airdrop.
$VRT is now being distributed 🎉 #BSC https://t.co/L4uwQVPGSZ
— Venus (@VenusProtocol) May 19, 2021
“There was a significant jump in the price of XVS, driven by large market orders and expectations around the new VRT,” explained the project’s founder Joselito Lizarondo. “In the wake of the price surge, traders deposited and borrowed more funds to keep buying XVS.”
According to him, many market participants used high leverage to improve capital efficiency. With the onset of the volatile correction, a cascade of liquidations occurred in the XVS market.
In the chart below, the Venus token price surged from below $80 to around $140, which occurred on May 18. This allowed users to borrow more funds, using XVS as collateral.
“Liquidations in Venus Protocol are no different from those that occur when users open margin longs. You use collateral to borrow more funds to increase the position, which you can redeploy and adjust,” emphasized Lizarondo.
The founder of Venus added that there were no glitches in the protocol’s operation.
The Block researcher Igor Igamberdiev expressed a different view — the price of XVS was manipulated.
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Today we have witnessed the manipulation of XVS price — the governance token of Venus Protocol on BSC.
This incident resulted in $200M+ DeFi liquidations and a $100M+ of protocol bad debt.
As usual, let’s analyze this situation below👇 pic.twitter.com/pAnjqHI25T
— Igor Igamberdiev (@FrankResearcher) May 19, 2021
Analyst cited journalist Colin Wu’s tweet. It stated that a user borrowed 4100 BTC and 9600 ETH, generating “bad debts” of $100 million. Wu notes that Venus had a similar incident before on the platform.
Igamberdiev recalled that a similar incident occurred in February 2021 on the Ethereum lending service Compound. At that time, the DAI debt grew by 30%, triggering liquidations of positions in significantly cheaper crypto assets. The service’s oracle used Coinbase to obtain price data.
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The previous record for liquidation volume was held by Compound after the DAI price oracle incident ($88M).
Back then, Compound Open Price Feed was heavily criticized by the Chainlink community, but virtually the same manipulation was just done even with Chainlink. pic.twitter.com/boiYvcLJv9
— Igor Igamberdiev (@FrankResearcher) May 19, 2021
As of writing, Venus leads the field in total value locked (TVL) among Binance Smart Chain projects. The combined TVL of the BSC ecosystem stands at $35 billion.
In April, Venus project’s TVL exceeded $10 billion.
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