Venus Protocol Suspected of $3.7M Flash-Loan Attack

Key Takeaways:

• An alleged exploit on Venus Protocol enabled a wallet to borrow about $3.7 million in crypto assets on the illiquid $THE token as security.
• The speech had taken out BTCB, CAKE and WBNB and was put into liquidation as collateral value declined.
• It is estimated that there is potential bad debt in the tune of $1.7M-$2M which is primarily related to the CAKE lending market.

Weird lending behavior in Venus Protocol has triggered panic throughout the BNB Chain DeFi environment. Analysts of blockchains found a huge collateral holding of the thinly traded token, $THE, that purportedly allowed a wallet to draw millions of crypto assets prior to the onset of liquidation proceedings.

Table of Contents

• Venus Protocol shows Suspicious Borrowing Activity
• Illiquid Token Collateral Suspected in Price Manipulation
• Venus Team Investigates as Bad Debt Emerges

Venus Protocol shows Suspicious Borrowing Activity

The incident went public on March 15, when on-chain observers noted abnormal activity that related to wallet 0x1a35bd28efd46cfc46c2136f87877d69ae16231. The speech allegedly has put a huge amount of $THE tokens into lending markets of Venus Protocol and took the latter as collateral to borrow other digital-assets.

The information you can see on BscScan and DeFi analytics sites suggests that the wallet obtained the following:

• 20 BTCB, valued near $1.43 million
• 1.5 million CAKE which is approximately $2.18 million.
• Around 200 WBNB, valued at about $132,000

The transactions sum up to around $3.7 million borrowed assets.

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Illiquid Token Collateral Suspected in Price Manipulation

According to community analysts, the exploit was probably based on the manipulation of the value of the $THE token, which is rather not liquid. It was reported that the attacker provided between 8.8 million and over 50 million THE tokens as collateral.

Due to the limited trading depth of the token, analysts believe that the attacker artificially increased the market price of the token in a matter of time by trades or flash-loans. The reason is that inflated prices boosted the value of collateral of the Venus Protocol.

The wallet obtained an increased borrowing power and borrowed assets including CAKE, BTCB and BNB as the collateral seemed more valuable.

After the token price stabilized, the position itself was undercollateralized, and the liquidation mechanisms were set off throughout the protocol.

Tens of millions of THE tokens have now gone into liquidation lines as the collateral position failed.

Venus Team Investigates as Bad Debt Emerges

In a statement to the press, Venus Protocol substantiated the occurrence by stating that it had detected some abnormal activity with the $THE pool. The team suggests that the problem is currently confined to THE markets and CAKE markets, and there are no indications of a wider breach of the protocol in terms of smart contracts.

Nevertheless, the platform has not shut down the entire protocol, even when the investigation continues.

Early community projections indicate that Venus could now be exposed to bad debt of between $1.7 million and $2 million, most of which is the CAKE market related positions.

The wallet of the suspected exploiter is still accessible on BNB Chain and assets taken as a loan can still be observed on-chain as analysts keep watching the actions.

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