Venus: How to Survive the $150M BNB Liquidation

Venus Protocol is a decentralized lending platform that operates on the BNB Chain, allowing users to borrow and lend various cryptocurrencies and earn interest on their deposits. However, the protocol has recently faced a serious threat of liquidation due to a large BNB position that was obtained by a hacker last year.

The hacker exploited a vulnerability in the BNB Chain in October 2022 and stole an estimated $120 to $150 million worth of crypto assets, including 900,000 BNB (worth about $210 million at the time). The hacker then used the stolen BNB as collateral to borrow $150 million worth of stablecoins from Venus Protocol, creating a massive leveraged position.

Since then, the crypto market has experienced a significant downturn, causing the value of BNB to drop by more than 50%. This has reduced the health factor of the hacker’s position to dangerously low levels, putting it at risk of being liquidated by other users who can repay the loan and claim the collateral with a 10% fee.

Venus’s Strategy for a Major BNB Position

The Venus Protocol team has been aware of this situation and has taken preemptive measures to prevent the liquidation and protect the protocol’s stability. They have contacted the BNB Chain team and requested them to freeze the hacker’s address and transfer the BNB collateral to a multisig wallet controlled by reputable community members.

The team has also proposed to burn the stablecoins borrowed by the hacker and distribute them as rewards to Venus Protocol users.

The team claims that these actions are necessary to avoid a potential market crash that could result from the liquidation of such a significant position. They also argue that this is not a bailout or a violation of decentralization, but rather a way to restore justice and fairness to the protocol and its users who the hacker’s malicious actions have harmed.

The proposal has received mixed reactions from the crypto community, with some supporting the team’s decision and others criticizing it as an interference with market forces and an erosion of trust in decentralized protocols. The proposal is currently undergoing voting by XVS token holders, who will ultimately decide the fate of Venus Protocol and its users.