The lending platform Venus has suffered a large amount of liquidation. Who will pay for the $100 million in bad debts?

As BSC’s largest lending platform, Venus has repeatedly had troubles, and it is very likely that BSC will lose the first-mover advantage established in the DeFi field.

Original title: “Emergency丨Venus, BSC’s largest lending platform, has encountered a large-scale liquidation. Who is going to cover the $100 million in bad debts?” 》
Written by: longcrypto

On May 19, it was revealed that Venus, BSC’s largest lending platform, was exposed to large-amount liquidation, and the impact was extremely bad. According to the feedback from the community, 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.

timeline

At 22 o’clock on May 18th, XVS was suddenly pulled up sharply without warning. By 30:30 on May 19th, the price of XVS hit $144. Since then, within two and a half hours, the price of XVS has basically doubled.

At 3 o’clock in the morning on May 19, Weibo KOL Wang Da broke the news that a large Venus mortgaged 2 million XVS at the high price of xvs and lent 4,100 flat cakes and 9,600 ether, which is continuing to be liquidated. Throwing the liquidated xvs to the market may cause a series of declines in currency prices. XVS price cut from high.

At 4 o’clock in the morning on May 19, the investor nicknamed “Yinhe” broke the news that more than 2 million xvs borrowed from the above account were liquidated to only more than 1.4 million and owed a debt of 83 million U.S. dollars to the Venus system.

In addition, there is an account mortgage XVS borrowed 12986 ETH, 470,000 xvs waiting to be liquidated, and the debt reached 15 million US dollars. The bad debts of these two accounts are nearly 100 million U.S. dollars. There are other unknown addresses awaiting liquidation, and I don’t know how much bad debts are.

At 8:30 on May 19, Joselito, the founder of Venus, tweeted that the funds in the Venus system are safe. When some borrowers have insufficient collateral, the liquidator will perform liquidation, and the liquidation profits will be transferred to the national treasury. Joselito also reminded not to over-borrow, pay attention to market conditions and volatility to ensure that your position will not be liquidated.

Community Fryer

After the Venus liquidation incident, the community fry the pot. The focus of the dispute is as follows:

• The total circulation of XVS is 10 million. Is the 2 million XVS owned by a large company or by the project party?
• Not long ago, Venus increased the loan ratio of XVS from 60% to 80%. Last night, XVS was pulled up and hit the market. Did someone exploit the loophole or did the project intentionally do it?
• Venus randomly added CAN as collateral at the initial stage of its launch, resulting in 3,000 BTC being lent out. Today, more than 4,100 BTC and 22,000 ETH were borrowed, and the same pit was stepped twice. The ability of the project party is worrying.

For the first question, there is no solution for the time being. However, a Twitter user nicknamed “Jordy Roelofs” provided an address, and those interested can study it: 0xEF044206Db68E40520BfA82D45419d498b4bc7Bf. With the help of Debank, we can see that the XVS of this address has been liquidated in large numbers.

Since it is currently not possible to go long and short XVS through contracts in centralized exchanges, signs of bearish markets become more and more obvious. If you are a large XVS or project party, what would you do? Now there are two options: First, sell XVS directly to the market. Due to the extremely poor flow of XVS, a large number of selling will smash the XVS price through and cause huge losses to itself. Second, the mortgage XVS is exchanged for BTC and ETH. Since the mortgage rate of XVS is 80%, even if the collateral is liquidated, the value of the hard assets such as BTC and ETH in hand will lose at most 20%.

At the same time, thanks to the pull offer last night, XVS was mortgaged at a high point at the same time. Theoretically, at a price of $144, the XVS collateral will be exchanged for BTC and ETH. With XVS falling to less than $50, not only did the mortgager not lose money, he would still make a lot of money if he exchanged for XVS now.

Regarding the second question, risk control is the bottom line of the lending platform. The lending platform has strict requirements on the mortgage rate of the collateral. If the value of the collateral fluctuates greatly and the liquidity is poor, it cannot be used as collateral. Otherwise, the market will fluctuate greatly and it will be easy to be liquidated.

In mainstream lending platforms such as AAVE and Compound, the lending ratio of each platform to their own platform currency is 65% and 60% respectively. The market value of these two assets is 7.5 billion U.S. dollars and 3.2 billion U.S. dollars, and the transaction volume in the past 7 days is 2.5 billion U.S. dollars and 300 million U.S. dollars, respectively. There are more than 7 exchanges supporting AAVE and COMP.

The mortgage rate of XVS is 80%. Before today’s liquidation event, the circulating market value was around 1 billion U.S. dollars, and the transaction volume was around 300 million U.S. dollars. There are only 3 exchanges that support XVS. The market value of XVS is less than that of AAVE and COMP, and its liquidity is similar to that of COMP, and there are few exchanges supported. Such asset volatility is much higher than the former two. Normally, the mortgage rate is lower than the former two.

However, Venus passed a proposal to increase the mortgage rate of XVS from 60% to 80%. This is not a wise move. Today’s incident is also inseparable from the adjustment of XVS’s mortgage rate.

Regarding the third question, Venus did not harm the community once or twice. For example, the sudden charge of handling fees last month caused a large number of machine gun pool users to suffer losses. This time, someone took advantage of XVS’s ultra-high pledge rate, resulting in hundreds of millions of dollars in assets being taken away and not returned. If a platform product was made like this, if it weren’t for Binance’s pro-son, it would have been eliminated long ago.

Follow-up

For the bad debts of more than 100 million U.S. dollars this time, some people suggest three ways to resolve them: First, Binance takes over the bad debts. Second, the Venus project party sells currency to make up the account. Third, the Venus project party went to other platforms to borrow to fill. Either way, it is not easy to implement.

For investors, the BTC or ETH pledged on the platform should be withdrawn in time to avoid failure to redeem them.

For BSC, the far-reaching impact of this incident has already appeared. The current situation is very tense. Polygon (Matic) has locked up $11 billion in less than two months, and Solana is also spending money on the racetrack. The first-mover advantage established by BSC in the DeFi field has gradually been eroded, and funds have been greatly lost. Lending and DEX are the foundation of DeFi. As BSC’s largest lending platform, Venus has repeatedly had troubles, which is very likely to drag BSC down. Binance will either take advantage of this incident to completely rectify Venus or re-establish it or simply build its own lending platform, otherwise the prospects for BSC are worrisome.

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