$145 000 000 USD

MAY 2021




"November 2020 saw the birth of a stunning new money market. CEO and founder of Swipe, Joselito Lizarondo, announced Venus protocol, one of the most decentralized, if not the most decentralized, money market and the first collateral loan platform provided on the Binance Smart Chain (BSC), enabling users of the protocol to borrow and supply collateral onto the platform without central authority or control." "Venus.io [is] a decentralized lending platform on Binance Smart Chain that allows users to borrow and lend cryptocurrencies and earn Venus governance tokens. Venus is a fork of Compound Finance and Maker on Ethereum." "Venus [is] BSC’s largest lending platform," describing itself as "a decentralized marketplace for lenders and borrowers with borderless stablecoins."


"The difference between Venus and other money market protocols is the ability to use the collateral supplied to the market not only to borrow other assets but also to mint stablecoins. These are synthetic stablecoins with over-collateralized positions that protect the protocol, and they named these coins VAI. Basically, every VAI has a one-dollar value."


"On the evening of May 18, the BSC-based DeFi lending platform Venus token XVS was doubled by the giant whale. After that, XVS was used as collateral to borrow and transfer BTC and ETH worth hundreds of millions of dollars. Since then, the price of collateral XVS is large. It fell and faced liquidation, but due to insufficient liquidity in the XVS market, the system failed to liquidate in time, resulting in a huge shortfall of hundreds of millions of dollars in Venus." "[A] few big players have more than 3 million XVS (Venus platform currency) in their hands. They spent tens of millions of dollars last night to increase the price of XVS from more than 70 dollars to 144 dollars in a short period of time. , And then mortgaged XVS at the high price and borrowed thousands of BTC and tens of thousands of ETH. Subsequently, the price of XVS quickly collapsed, XVS was liquidated, and currently caused more than 100 million U.S. dollars in bad debts to the Venus platform."


"Early this morning (SGT), there was a massive price spike in the XVS caused by large market orders and expectation on the new VRT. These large tranches of orders, with the limited supply available that is unstaked, caused a huge fluctuation in market prices. Due to the price increase, traders supplied and borrowed more collateral to continue to buy XVS. These trades were done at high margin per the protocol reports. Thereafter, there was price volatility downwards as some traders were securing profits from the price increase. This was the domino effect that caused a large string of market liquidations in the XVS market."


"[D]ue to insufficient liquidity in the XVS market, the system failed to liquidate in time." "On the 30th, Venus officially released an article that disclosed the process and results of the incident. The survey showed that the liquidator made a profit of about 20 million U.S. dollars, and the seller made a profit of about 55 million U.S. dollars; the "scalper" made a profit of about 2 million U.S. dollars; the 0xef044 address account had a net loss of about 66 million U.S. dollars. Secondly, its address attribution is based on the Swipe escrow address used on Binance, so there is no insider trading. The agreement lost approximately $77 million due to market fluctuations. VGP will recover approximately US$77 million from the distribution fund, and formulate a community recovery plan for XVS holders and others in the form of airdrops from the distribution fund and agreement income."


There was speculation that this was caused by insiders. "Hundreds of users suffered losses and liquidated due to a liquidity shortage of over $100 million due to problems with the XVS protocol. This is a direct result of the team's actions, the Venus protocol system allowed maximum borrowing after apparent manipulation of the price of XVS tokens on the Binance exchange. As a result, more than 2 million XVs were forced to liquidate." However, Venus reports that "[b]ased on thorough investigation of public on-chain data and non-public off-chain data collected and provided by others, there is no specific group of market participants that stole money from the protocol."


Or, as Venus said on Twitter, "Please read our Venus XVS Liquidation Incident report. All funds are safe and the protocol is safe." "After the market volatility on May 18th, two addresses on Venus protocol ended up with significant shortfall: 0x7589dd3355dae848fdbf75044a3495351655cb1a and 0xef044206db68e40520bfa82d45419d498b4bc7bf. This was due to extreme market volatility, unexpected external market manipulation and poor risk management. We sincerely apologize for the inconvenience and disturbance it brought to the community and thank everyone for their patience and support since."


"After the Shortfall crisis in May, the Swipe team has withdrawn from Venus. This project needed new partners to carry on work. With the assistance of BSC coordinators and Venus Community coordinators, we have formed a brand new working group to promote the project development, operation, and community affairs. Some key positions are also interviewing outstanding talents." A "[n]ew Venus Council [was] introduced and voting weight and control [was] delegated to the new Venus Council."


"As an initial step, we aim to recover the protocol back to a sound state where suppliers are able to receive their supplied assets back ‘at will’ in the most systematic way possible."


"Aiming to solve the DOT liquidity issue on #Venus, the community propose[d an] update to the DOT Interest rate model." The project will also "Deploy and Utilize the Venus Grants Program (VGP) to take out approximately 1.2M XVS to OTC via a counter-party to cover the shortfall on BTC and ETH." "In parallel with handling the system shortfall, we are taking extreme measures to ensure that this never happens again. By addressing the following items below, we believe, as well as from external advisors, that this incident will be recovered and mitigated/prevented in the future."


"Venus's most challenging time has passed, and the follow-up will get better and better." "Venus, from a protocol level, has great potential to become the entire ecosystem’s go-to money market and we believe these changes including risk management, team structures, and full transparency will restore confidence in the project under new management."


A "limited edition NFT is a commemoration of the Venus Protocol for all circulating supply XVS."

Venus Finance is a collateralized loan platform. Due to a price spike and subsequent drop, there was a domino of liquidations triggered.


The protocol was able to capitalize the loss, and took a large number of preventative measures to reduce the future risk.

Sources And Further Reading

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