An article on the biggest liquidation of the DeFi protocol to date: Venus

The Venus protocol faced a massive liquidation of more than $200 million on Wednesday due to alleged price manipulation of the native token XVS.

An article on the biggest liquidation of the DeFi protocol to date: Venus

The Venus protocol faced a massive liquidation of more than $200 million on Wednesday due to alleged price manipulation of the native token XVS.

For those who don’t know much about the Venus protocol, let’s start with a brief explanation. the Venus protocol provides a decentralized financial lending service on the Binance Smart Chain, allowing users to borrow money using XVS tokens as collateral. As required by the Venus protocol, the value of the borrowed funds must always be lower than the value of the collateral provided.

The main reason for this massive liquidation was due to the price spike and subsequent crash, which saw the price of XVS tokens rise nearly 90 percent by midnight ET this Wednesday, climbing from $76 to $144 in one fell swoop, meaning users could pay very little in tokens for collateral and then be able to borrow more funds and other tokens, such as bitcoin and ethereum, on the Venus protocol.

Soon, however, cryptocurrency market prices plummeted, resulting in many people not having enough loan collateral value. However, many of those who borrowed on the Venus protocol did not repay their loans in a timely manner, choosing to keep their newly acquired tokens and default on their loans. The agreement then worked as expected to liquidate the remaining collateral.

The problem, however, was that the entire cryptocurrency market was in a downturn, causing the value of much of the collateral to also plummet, to the point that even after the Venus agreement was sold, the value of the collateral was still well below the original loan value – as a result, Venus incurred over $95 million in bad debt, including

  • 2,000 Bitcoins (worth nearly $79 million at current prices)
  • 5,700 Ether (worth nearly $17 million at current prices)

Bad debt, meaning the Venus protocol is unable to collect receivables from users.

What exactly is causing the XVS price to spike?
Joselito Lizarondo is the founder of the Venus protocol and the founder of Swipe, a crypto wallet and debit card provider owned by Coinan. According to him, the XVS price spike is caused by two main reasons.

  1. A large number of market orders in a short period of time
  2. limited supply of tokens (as many users pledged XVS tokens)

Most of the XVS token transactions took place on the Coinan exchange, and The Block Research analyst Igor Igamberdiev said that cryptocurrency exchanges are usually known for their high liquidity, but for XVS, the cryptocurrency is not really very liquid, so its price can be easily manipulated, while at the same time, the Venus protocol still approved more loans at the time of the XVS token price spike.

However, Venus Protocol founder Joselito Lizarondo claimed that the protocol was working as expected and that “there was no loss of funds,” while acknowledging that there was a bad debt problem and noting that Venus Protocol would use its grant program and “use XVS tokens” to cover the gap.

In fact, the cryptocurrency market is notorious for bad debts similar to the Venus Protocol’s massive liquidation.

In November 2020, the price of the stablecoin DAI skyrocketed, resulting in a liquidation fund of up to $88 million for the DeFi protocol Compound.

On “Black Thursday”, March 12, 2020, the cryptocurrency market plummeted and the structure led to the liquidation of the DeFi protocol MakerDAO worth over $8 million.

Based on current statistics, the Venus protocol may have triggered the highest liquidation fund size in DeFi’s history to date.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/an-article-on-the-biggest-liquidation-of-the-defi-protocol-to-date-venus/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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