BNB price plunge triggers $30M Venus protocol liquidation

During the crypto market crash on August 17th, the Venus lending protocol had to sell off a $30 million BNB position owned by the individual responsible for the $560 million hack.

This action was taken manually by the BNB Core team because BNB’s price fell below $220 following a governance proposal passed by Venus in November 2022.

The team chose manual liquidation to prevent a margin call on-chain, which could have caused a liquidity shortage and potentially destabilized the BNB price, posing a risk to the broader DeFi ecosystem on BNB Chain.

As of CoinGecko’s data, BNB had dropped by 38% since mid-April and was last traded at $215.8. On a positive note, Venus’ XVS token had gained 6.5% in the past 24 hours.

In October 2022, the hacker used the BNB Chain bridge to make 2 million BNB tokens and then used 900,000 BNB as collateral to borrow $150 million in stablecoins on Venus.

Venus stated, “Following today’s market movement, the BNB Bridge exploiter account was made healthy as promised by BNB Chain using whitelisted liquidation without any resulting shortfall or further impact to BNB.”

Venus, the second-largest DeFi protocol within the BNB Chain network, has been making headlines recently due to its total value locked, which currently stands at an impressive $600 million.

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However, a recent incident involving Venus has shed light on the delicate balance between centralization and risk management in the world of decentralized finance.

One crucial aspect of this incident is the varying degrees of centralization that different smart contract networks offer. The BNB Chain, where Venus operates, demonstrated a willingness to intervene when necessary.

This intervention helped mitigate the risk associated with a significant liquidation event that could have caused further damage to the ecosystem.

In stark contrast, Michael Egorov, the founder of Curve Finance, faced a challenging situation with Ethereum-based lending protocols. Concerns were growing within the crypto community about the potential for substantial liquidations on-chain due to a decline in the price of CRV, the native token of Curve Finance.

This fear was triggered by exploits on July 30th that targeted Vyper, a smart contract coding language used by Curve.

The fallout from these exploits led to a sudden drop in the CRV price, putting hundreds of millions of dollars in CRV-backed loans at risk of liquidation. With on-chain liquidity for CRV dwindling, leading lending protocols on Ethereum faced the specter of accumulating bad debt.