Venus is an algorithmic money market (AMM) protocol built on the BNB Chain (BSC). Venus Protocol delivers lending and borrowing services to BNB Chain. Besides, suppliers of collateral can mint synthetic stablecoins ($VAI) with overcollateralized positions.
Launched in September 2020, it is the second-largest protocol on the BNB Chain with a total supply of over $1.08B value locked (TVL) of which there is currently over $625M in available liquidity and a treasury of more than $10.63M as of November 3rd. The protocol currently supports 23 tokens for lending and borrowing.
By merging the stablecoin minting opportunity introduced by MakerDAO and algorithmic money markets developed by Compound, Venus vastly simplified the user experience and provided key capabilities that empowered decentralized finance to function in a single application.
Venus Protocol states that:
“Venus helps bridge the gap between traditional financial lending and decentralized protocols on top of blockchain. It enables anyone to utilize a high-speed and low transaction cost blockchain to supply collateral, earn interest, borrow against that collateral, and mint stablecoins on-demand within seconds.”
As a result, it is one of the most widely used decentralized applications (dApp) in Web3 survived tough times, and vulnerabilities, and not only stayed in the DeFi space but even kept evolving.
Why BNB Chain?
The BNB Chain makes Venus quicker and easier to manage. Typically it takes more than 10 seconds to create a block when we’re talking about the majority of blockchains. In the case of the BNB Chain, it takes around 3 seconds. That makes all operations more efficient and cost-effective. So, it has Ethereum blockchain capabilities, but higher throughput and lower fees.
Another big plus is that BNB Chain can interact with other chains. Thus, developers can build platforms that work across multiple markets increasing the number of people who can interact with the Venus protocol. This also enables users to move funds between various platforms on the blockchain.
The last but not least point here is that the BNB Chain has a vast community of users and developers to reach out to once a user has any issues. An opportunity to interact with an enthusiastic and knowledgeable community may make it easier to create and implement ideas to make Venus better.
Why Invest in Venus?
Venus is quite a popular investment option thanks to a number of reasons.
In this review, we are going to list the major ones:
- The protocol uses deposited collateral not only for borrowing other assets but also for minting synthetic stablecoins with over-collateralized positions;
- The synthetic stablecoins on Venus are backed by crypto assets;
- Venus boosts the Binance Smart Chain to process instant, cost-effective transactions;
- It gives you access to a vast choice of wrapped tokens and liquidity;
- Users may provide digital collateral in exchange for a loan;
- Venus is not controlled by intermediaries, so it operates in a transparent manner;
- The protocol has a wide range of popular coins such as Venus (XVS), USD Coin, BNB, ETH, ADA, etc.;
- Venus owns $VAI, the world’s first decentralized stablecoin;
- The protocol is continuously developing and changing. Venus V4 vision is an additional proof of that.
How to Invest in Venus Protocol?
Venus offers several options to get acquainted with the DeFi narrative through lending, borrowing, minting stablecoins, and participating in governance. Let’s unfold all the above-mentioned options gradually.
The platform is suitable for earning interest on your assets. Funds locked inside the protocol can gain you annual percentage yields (APY) depending on the type of asset. By issuing crypto assets to Venus, a user can act as a lender while still retaining the security of collateral in the protocol.
As all user assets are pooled into smart contracts, you may withdraw your supply at any moment as long as the protocol balance is positive.
Users who provide their cryptocurrency or digital asset to Venus, get a vToken, such as vBTC, which is the sole token that may be used to redeem the underlying collateral they have provided. Venus protocol users can tokenize their assets utilizing the BSC chain and receive portable vTokens, which they may move to cold storage or transfer to other users.
The Venus Protocol grants you access to instant liquidity by utilizing their vToken collateral to borrow from the Venus Protocol without having any trading fees or slippage.
Venus provides on-demand liquidity that is accessible anywhere in the world. To borrow any of the supported cryptocurrencies or stablecoins, you should provide protocol-locked collateral. To borrow assets, you don’t need to provide credit information.
Borrowing up to 75% of the collateral value of these assets demands over-collateralization. The protocol has collateral ratios, which are maintained by the governance process. You may borrow against these assets according to their collateral ratio, which fluctuates from 40% to 75%.
So, if $LINK has a collateral value of 75%, which means you may borrow up to 75% of your $LINK’s value.
- Minting Synthetic Stablecoins
The Venus System provides you with minting VAI ($VAI), a synthetic stablecoin pegged to a $1 US dollar ($USD) option. You can do this by using the vTokens from the underlying collateral provided to the protocol.
You can borrow up to half of your remaining collateral value from vTokens to mint VAI. Synthetic stablecoins are created by supplying and locking a single cryptocurrency or a basket of cryptocurrencies.
- Governance Participation
You, as a Venus user, can have an impact on the Venus Protocol's future, as it’s entirely controlled by the community through its governance token $XVS. To submit a proposal, you should have two things:
- 300,000 $XVS;
- a minimum of at least 600,000 $XVS for it to be accepted.
The voting Period is 24 hours and Timelock is 48 hours for normal VIP's. We also have a new mode (FastTrack) which is 24h voting and 6hrs Timelock.
By doing this, you can vote on several protocol-oriented issues, such as adding new tokens to the protocol, setting fixed interest rates for synthetic stablecoins, and reserving distribution schedule delegations, Voting on protocol upgrades and proposed changes.
The protocol has Venus Vault that enables you to lock $XVS to improve the protocol’s security and gain staking rewards.
Tokens, Tokenomics & Fees
Venus Token ($XVS) governs the Venus Protocol. The revenue distribution is spread the following way:
Revenue Distribution from Protocol Reserves
Protocol reserves are mainly composed of accumulated borrow fees. The model for revenue allocation from these reserves divides income into four main segments:
- Risk Fund (40%): This fund is established to address potential shortfalls in the protocol, particularly in situations of ineffective or delayed liquidations. The allocation to the risk fund remains unchanged to maintain a strong financial buffer;
- Treasury Reserve (40%): The treasury reserve bolsters the protocol's resilience and provides a robust safety net for its ongoing operations;
- XVS Vault Rewards (10%): Venus protocol continues to incentivize users through XVS Vault Rewards;
- Venus Prime Token Program (10%): This program utilizes a portion of the reserve revenue to incentivize user participation and boost the APYs for qualified users in the main market.
Allocation for Additional Revenue Streams
Other revenue streams include liquidation penalties and potential income generated from future product releases. The revenue distribution for these streams is as follows:
- Risk Fund (50%);
- Treasury Reserves (40%);
- XVS Vault Rewards (10%).
Source: Tokenomics - Venus Protocol
It has a dual allocation model that accounts for the various revenue sources within the Venus Protocol ecosystem. It ensures strong and responsive financial maintenance.
Basically, there are two ways to earn $XVS:
- The Binance LaunchPool;
- Provide liquidity to the protocol.
A total of 20% supply of 30,000,000 $XVS was dedicated to the Binance LaunchPool project, where users were able to mine these tokens, with 1% of the total supply of XVS set aside for grants to the Binance Smart Chain ecosystem.
$XVS is distributed by liquidity mining, with 35% going to borrowers, 35% to providers, and 30% to stablecoin minters.
You can also monitor the most essential statics on Dune’s dashboards:
When you issue collateral ($BNB or BEP-20 tokens), the protocol creates pegged assets called vTokens. The vTokens reproduce the unit of the provided collateral and they can be used as a redemption mechanism.
Venus does not have a set fee structure, as the amount of each transaction changes depending on exchange and demand which are not constant.
The lending interest fees are calculated in a similar way. They vary based on the market and might yield different returns at different points in time.
You can count possible fees using Venus’s Whitepaper.
How Risky Is the Venus Protocol?
The Venus platform is democratic and decentralized. It operates its own decentralized Governance. The over-collateralization of lending works as a form of security with each block part of a ledger.
Besides, the BEP-20 standard applies to the entire Venus Protocol, and the Venus itself is licensed and open-source under the MIT License. The entire protocol constantly goes through audits that can be easily checked by Venus’s documentation.
There was an attempt to hijack Venus Governance on Venus back in 2021 when anonymous attackers tried to exploit the Governance and appropriate 3.7 million $XVS. Luckily, using the emergency Guardian function, the Venus team could repel this proposal from being implemented, a security mechanism only used in emergencies.
However, the Venus team has been implementing some safety measures for the best risk management, including establishing an independent risk committee that will conduct an ongoing review of the Protocol, providing a mechanism for shortfall coverage, and a stability fee to keep $VAI pegged.
Venus Protocol combines the money market and stablecoin generation conducted in the same protocol. This can benefit the crypto ecosystem by unlocking collateral potential.
In addition, BNB Chain's speed and low costs for transactions make financial products more affordable for anyone with a cryptocurrency wallet. Investors can borrow assets, earn interest on, and supply liquidity, and mint stablecoins, $VAI, on demand.
Despite all the challenges, the team has proved its ability to adapt and find new ways to remain valuable for its token holders.
The proposed Venus V4 upgrade optimizes the protocol by implementing a shortfall coverage, a stability fee, stable interest rates, isolated markets, and additional price feeds.
Venus has also released a major proposal recently which is about leveling up scalability and access to the developers and users community.
This is a synergy moment between Ethereum and Curve Finance that adds even more adoption and utility for Curve’s crvUSD as a stablecoin within lending protocols, and $CRV as a collateral option, all this paired with a beneficial rewards system.
The protocol is getting ready to launch a program — Venus Prime, early in Q4 2023. The main goal is to reinforce user engagement within the protocol and boost $XVS staking. Its main focus will be on markets including $USDT, $USDC, $BTC, and $ETH.
Where to Follow Venus?
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It bridges DeFi protocols and investors, offering an all-in-one tool for exploring, assessing, and managing investments in the most beneficial way.
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Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.