What is Venus (Coin XVS)? How was the XVS Coin Ecosystem Hacked?

XVS Coin of Venus Protocol encountered an incident in May 2021 that some people considered as a hack of XVS coin. If you do not know about XVS coin ecosystem project, what Venus coin is, information related to XVS token or more details about the hack of this protocol, please read today’s article of Finance Solutes!

1. WHAT IS VENUS PROTOCOL?

Venus, or the Venus Protocol, is an algorithm-based money market system protocol designed to provide a comprehensive decentralized financial application for lending and borrowing, running on the Binance Smart Chain blockchain. Simply put, it’s a decentralized protocol that offers lending and borrowing services. Users of the XVS coin protocol can borrow or lend to other users within the network by using cryptocurrencies supported by Venus Protocol.

Users must provide collateral to the network as a commitment before borrowing. This creates a secure borrowing environment where lenders receive APY paid per block, and borrowers pay interest on the coins they borrow.

Unlike many current crypto lending protocols, collateral in the XVS coin protocol can be used not only to borrow other crypto assets but also to mint stablecoins called VAI. These VAI stablecoins are value-backed by other cryptocurrencies instead of fiat.

In short, the three main features supported by the Venus coin protocol are:

• Collateralized borrowing: Users can borrow assets worth up to 75% or less of their collateral’s value.
• Earning interest: Achieved by supplying collateral assets to Venus Protocol.
• Minting VAI stablecoin: A synthetic stablecoin pegged at 1 USD.

1.1. The Problem at Hand

It’s no surprise to readers of this article that decentralized finance built on secure and pre-defined smart contracts on blockchains is popular and rapidly developing. Most projects aim to define market structures without relying on centralized institutions or third parties.

In traditional finance, to get a loan, borrowers must prove creditworthiness or income—even when collateral like a house or car is provided. This process is often complicated and excludes crypto assets.

Venus Protocol and the XVS coin project are certainly not the first to try bridging the gap between traditional lending and blockchain-based decentralized lending. Previous protocols have already locked in billions in value. However, a challenge from this is that most protocols were built on Ethereum, leading to high costs, slower execution, and scalability issues.

1.2. XVS Coin Project’s Solution

To tackle these problems, Venus Protocol introduced the ability to mint synthetic stablecoins in addition to lending and borrowing. Built on Binance Smart Chain, it allows users to enjoy faster, lower-cost transactions and a more user-friendly interface.

Venus enables users to access a wide range of popular cryptocurrencies and borrow them without credit checks. To prevent manipulation or market abuse, the XVS protocol uses algorithms for price feeds that reliably provide tamper-proof pricing data.

1.3. Development Team Behind XVS Coin

Neither the project website nor its social media mention the development team or detailed member structure. However, unofficial sources indicate Venus Protocol and the XVS token were developed by the Swipe team, led by Joselito Lizarondo.

One unique point of Venus XVS is that no XVS coin allocation was made to the development team or project founders. This gives full control of the protocol’s roadmap to XVS holders. After a few liquidity-related crises, Swipe withdrew from the project. Since then, Binance has supported the protocol during and after recovery.

2. VENUS PROTOCOL STRUCTURE

The protocol is forked and modified from both MakerDAO and Compound to integrate both systems. Binance Smart Chain runs alongside Binance Chain and protects Venus Protocol and other stored protocols using Proof of Staked Authority (a hybrid of Proof of Stake and Proof of Authority).

With Venus Protocol, users can deposit various cryptocurrencies and earn annual interest—similar to savings accounts in traditional banks. However, unlike banks, Venus Protocol doesn’t have custody over your assets. Users interact directly with smart contracts.

When users supply crypto or digital assets to Venus, they receive vTokens (e.g., vBTC) instead of XVS coins. vTokens are the only tokens redeemable for the original collateral. Users wishing to borrow crypto must provide collateral at a ratio determined by the protocol, and interest rates are governed by network governance.

Smart contracts implement a yield curve to determine market-specific interest rates, which vary by market and are auto-calculated.

3. WHAT IS XVS COIN?

XVS coin is the core token of Venus Protocol, responsible for governance and capturing the protocol’s main value. It was launched as a Fair Launch, meaning no pre-mined tokens were allocated to developers or founders. Its primary function is governance voting—deciding on adding new collaterals, improving products, and evolving the platform.

Out of the initial 30,000,000 mined XVS coins, distribution was as follows:

• Binance Launchpool: 20%
• Binance Smart Chain Ecosystem: 1%
• Ecosystem Mining: 79%

From the 79% distributed to the ecosystem:

• Lending group: 35%
• Borrowing group: 35%
• Stablecoin group: 30% – including users of VAI tokens

3.1. XVS Token Basic Info

Here are some essential details about XVS coin:

• Symbol: XVS
• Token standard: BEP-20
• Circulating supply: 12,170,524 XVS
• XVS Coin Price: $4.99
• Token address: 0xcf6bb5389c92bdda8a3747ddb454cb7a64626c63
• Market Cap: $61,092,390.06

3.2. Governance in the XVS Ecosystem

As mentioned, Venus Protocol is community-centric and governed by its users. XVS distribution reflects this. To propose changes, at least 300,000 XVS are required, and approval needs 600,000 affirmative votes from XVS holders.

Governance proposals may include:

• Adding new cryptocurrencies or stablecoins to the protocol
• Adjusting interest rates
• Setting fixed interest rates for synthetic stablecoins
• Voting on Venus Protocol upgrades
• Authorizing protocol reserve distributions

4. HOW TO STAKE XVS TOKENS

Venus allows liquidity mining via staking any supported tokens like BNB to earn XVS rewards and participate in governance. On Venus Protocol, go to the “Vault option” and stake your minted VAI.

You’ll then gain voting rights in the network. Staking rewards are paid in XVS and can be claimed by clicking “Vote” on the left-hand menu.

5. HOW WAS XVS COIN HACKED?

In May 2021, a $200 million liquidation was withdrawn from Venus Protocol—considered by some a manipulation of XVS coin. TradaFX summarizes the incident’s key milestones:

• May 8: The collateral factor for XVS-backed loans was increased from 60% to 80%.
• May 18: May 18: XVS token price increased from $80 to $145, nearly doubling in just 3 hours. That caused many people to sell XVS coins to get profit.
• A large number of loans during this period used XVS as collateral. The borrowed assets were withdrawn from the protocol.
• In the next 4 hours, the price of XVS crashed back to $80, leaving Venus with about $100 million in bad debt it couldn’t recover.

Normally, users would top up collateral after a price drop, but the two attackers didn’t, forcing Venus to liquidate XVS collateral—its market price now too low to cover losses.
Price manipulation became evident as the dumped XVS tokens further pushed down prices, making liquidation insufficient.

6. CONCLUSION

While Joselito Lizarondo reportedly addressed the issue on XVS coin Twitter, some investors speculate the Venus Protocol team was behind the manipulation. Nevertheless, after the incident, the protocol proposed lowering the collateral factor for XVS and used its reserve fund for recovery, quelling controversy.

Though this incident occurred in 2021, Finance Solutes includes it in today’s article to give you, beyond the basics of what XVS coin is and how the protocol works, a fuller picture of the project, its vulnerabilities, and its recovery—so you can make an informed decision about investing in XVS or participating in the Venus Protocol.