Venus Protocol: A Mixture of Compound and MakerDAO on the Binance Smart Chain

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2 years ago

*obligatory not financial advise*



What is Venus?

Venus is a DeFi protocol that offers both a lending and minting stablecoins and it runs on the Binance Smart Chain. Its code is a fork of Compound and MakerDAO and it unites their functions into a one-stop-shop solution were users can keep their funds in a lending protocol to earn interest while also using it as collateral to mint stablecoins.

Venus can provide collateralized loans which are useful if you need liquidity but don't want to sell an asset because you believe its value will grow further. Just like Compound and Aave, Venus lets you earn a yield on your crypto assets by lending them for collateralized loans. Borrowers can leave cryptocurrencies as collateral to take a loan worth up to 75% of its value and they have to pay it back with interest if they want their collateral back.

MakerDAO lets users mint a decentralized stablecoin that is pegged to the US dollar by leaving a crypto collateral. Here the collateral is not earning a yield which comes at a cost to the people minting the stablecoin because they could keep their crypto in a lending protocol instead. Venus unites both functions and lets people lend their crypto and simultaneously use it as collateral for a stablecoin called VAI.

Venus is native to the Binance Smart Chain, which fast, cheap to use and very popular amongst crypto new comers. The Smart Chain also has many bridges to multiple big cap cryptocurrencies that are not as easy available on Ethereum like Litecoin and XRP. However the blockchain is also very centralized and obviously depends on the Binance exchange.


Venus lending currently supports more than 20 cryptocurrencies which includes Binance Coin and also many bridged coins of other blockchains like BTC, ETH, LTC, BCH, AAVE, DOT, LINK and many more very popular coins. The interest you can earn is different for each crypto and is variable depending on how much of it is being borrowed vs how much is being supplied.

When you send your funds to the lending protocol you will receive vTokens as a place holder in your wallet which you can use to redeem the underlying assets. This makes it possible to move provided funds to cold wallets that support the Binance Smart Chain.

People that lend funds are additionally earning 35% of the XVS distribution.


Obviously, the same assets that can be supplied can also be borrowed. If you want to borrow a coin, because you want to trade it and don't have enough cash for example, then you need to first deposit any supported crypto. Each asset has its own collateral ratio, which can range between 40% and 75%. If Bitcoin has a ratio of 75%, then this means that you can at max take a loan equal in value to 75% of your BTC. You can supply different cryptocurrencies, your collateral ratio will be a mixture of their individual ratios.

Borrowers have no fixed rates at which they have to pay the loan back, they can pay it back whenever they feel like it. In theory they could never pay it back if the value of the collateral stays above what is necessary. The interest rate is variable and depends on how much of this asset is being borrowed and how much is being provided.

Should the value of the collateral fall below the needed ratio then this will trigger a liquidation of the collateral. Then you can keep the borrowed assets and any surplus made by selling your collateral will be send to you minus a liquidation fee. This means that if you have 75% collateral ratio on BTC and you provide $100 worth of it, then you can borrow at max $75 worth of any other asset. If the value of your BTC drops down to $90, then it will be sold to cover your $75 loan, the remaining $15 worth of value will be returned to you but there will be a fee deducted.

Borrowers are also earning 35% of the XVS distribution.

Minting Stablecoins

Venus lets its users mint the decentralized stablecoin VAI that is based on the US dollar. The vTokens that you receive for lending can be used as collateral for the stablecoins, so you can keep getting a lending yield on your collateral. Users can mint 50% of the value of their collateral as stablecoin. If you use $100 worth of BTC, then you can get up to 50 VAI. Different kinds of stablecoins that are pegged to different currencies or assets will likely be added in the future.

Just like when you borrow assets, you can pay the stablecoins back anytime and if the value of your collateral falls below what is needed it will be liquidated. The interest rate will not directly depend on supply and demand like with lending, instead it is a fixed rate that the holders of XVS will decide.
There are many DeFi apps that let their users mint stablecoins but Venus is probably the only one that lets its users earn a yield with their used collateral.

Stablecoin minters are also earning 30% of the XVS distribution.

Venus Token XVS

The Venus token is the governance token of the DeFi app. The holders of the token can decide on possible changes to the protocol, like which assets should be added. They can also change parameters for lending, borrowing and stablecoin minting, for example they could set a max amount of stablecoins that could be minted or change the needed collateral ratio of an asset.

The launch of the token was designed to be very fair. There is a total max supply of 30,000,000 XVS and there was no pre-mine for team members or founders. 20% of the total supply was sold at the Binance Launchpool to their users and the remaining 80% of the entire supply is going to platform users during the first 4 years after the protocol launched. 18,493 XVS are being rewarded to users each day, 35% go to lenders, 35% to borrowers and 30% to stablecoin minters. The amount you can get depends on how much liquidity you lend or borrow relative to everyone else.

The value of the token depends on how much value is stored in its smart contracts because voting rights for possible changes become more desirable if they affect more money. The platform itself is great, easy and cheap to use and the token is very much decentralized. It has also much more room to grow than its competitors Compound or MakerDao. The only bigger concern is that the Binance Smart Chain, which is hosting Venus, is very centralized.

Still if you are using the Smart Chain then you could might as well use Venus to earn some interest and receive some XVS tokens as bonus.


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2 years ago