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Venus Protocol: $30M Liquidation of BNB Chain Attacker

Aug 21, 2023 at 02:27 pm

In a continuation of recent events, the cryptocurrency market witnessed its second significant liquidation within a week, potentially acting as a protective measure against sudden crashes in BNB prices.

A wallet notorious for borrowing over $150 million worth of stablecoins from the lending and borrowing platform Venus Protocol faced liquidation once again, this time totaling more than $30 million. The occurrence unfolded as the value of BNB (Binance Coin) dipped to $209 earlier today.

In a carefully orchestrated move, the BNB Chain developer team manually executed the liquidation of over 6.89 million Venus BNB (vBNB) tokens, equivalent to $30 million. This action aligned with a governance vote conducted in November 2022.

Liquidation, in the context of cryptocurrency trading, refers to the act of forcefully closing a trader's leveraged position. This decision is prompted by either a partial or complete loss of the trader's initial margin. It becomes necessary when a trader fails to meet the margin requirements for their leveraged position or lacks the necessary funds to maintain the trade.

This recent liquidation, observed on Monday, echoes a similar event from the previous week, wherein an impressive $60 million worth of the exploiter's borrowed funds faced liquidation across two separate transactions.

Why is BNB Chain protecting Venus?

Operating on the BNB Chain network, Venus serves as a decentralized platform dedicated to lending and borrowing activities. Within its purview lies an extensive collection of various tokens, boasting a total valuation surpassing $620 million. Out of this substantial sum, around $480 million has been accessed by users keen on exploring diverse financial prospects.

Amid this user base, a particular wallet stands linked to the infamous BNB Chain exploiter. In the preceding year, this malefactor executed a scheme that enabled them to wrongfully amass over $100 million in BNB tokens. The exploit centered around a bridge mechanism, a tool engineered to facilitate the seamless movement of tokens across disparate networks, all within the framework of the BNB Chain infrastructure.

Seizing upon their ill-gotten gains, the exploiter proceeded to channel the unlawfully acquired BNB tokens into the Venus lending protocol, effectively leveraging them to secure an astounding $150 million worth of stablecoins through the act of borrowing. Yet, the enduring decline in BNB prices over the course of the past year has cast a pall over this formidable loan, pushing it precariously close to the precipice of liquidation. The potential repercussions of this event loom large, as it could incite the rapid offloading of BNB tokens onto the open market, thereby amplifying the downward pressure on BNB prices.

The specter of this looming collapse has roused concerns about its far-reaching impact on the expansive decentralized finance ecosystem that thrives within the BNB Chain network. In response, Venus and BNB Chain have united their efforts in a synergistic endeavor to stave off this undesirable outcome.

Recognizing the inherent volatility that characterizes the market, the weighty implications tied to a significant liquidation event have been duly acknowledged. The very real risk that such an event might trigger a cascade of further liquidations, inadvertently inflicting harm upon the market, Venus users, the BNB token, and even the BNB Chain itself, prompted a proactive stance. This strategic approach was formally enshrined in a proposal ratified in November 2022, designating BNB Chain as the exclusive entity responsible for liquidating the address associated with the BNB Chain exploiter.

To preserve the equilibrium and robustness of the ecosystem, the proposal outlines a collaborative commitment to engage with Binance and other stakeholders within the broader BNB Chain Ecosystem. Should the threshold for liquidation be breached, a concerted effort will be mounted to seize control of the situation and retire the debt. This spirit of cooperation underscores the paramount importance attached to upholding the stability and financial well-being of Venus and its community of participants.

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