What is Venus Protocol?
They say men come from mars and women from Venus. This might explain why Elon Musk and other space adventurers are eager to go to Mars when Venus is closer to earth. Coincidence that Swipe decided to call their lending and borrowing protocol after the planet that supposedly women are from?
We might never find out. Regardless, today I will cover Venus protocol — a DeFi protocol built on top of the Binance Smart Chain (BSC). Recently, a lot of attention in the BSC ecosystem has been focused on new meme coins that were issued at incredible speed. However, Memecoins isn’t all that DeFi on BSC has to offer.
As Ethereum continues struggling with high gas fees and just postponed the upgrade that is hoped to solve the scalability problem to 2022, developers are looking for other platforms to build their DeFi applications. Venus is Binance’s answer to Maker Dao. It’s an algorithmic money market protocol for all BEP-20 assets.
BEP-20 assets are issued according to the Binance Smart Chain token standard. Binance Smart Chain is a smart contract chain, running with a Proof-of-Stake algorithm.
While lending and borrowing platforms on the blockchain aren’t new, one of the significant downsides when using them is that borrowers typically miss out on other exciting DeFi opportunities such as yield farming and liquidity mining.
With Venus protocol, borrowers can still benefit from earning interest on their collateral, borrow against it, and mint the platform-native stablecoin VAI on-demand in seconds. This unlocks billions of dollars in value currently held in markets that don’t have many lending markets yet, such as bitcoin (slowly, we see the emergence of bitcoin lending with platforms like Sovryn and Money on-chain), LTC, XRP, and others.
How does it work?
Let’s say you’re deep into crypto and, despite the recent dip, don’t want to sell any of it. However, you also want to buy a house because real estate prices have recently gone down in your area, and it’s time to settle. Unfortunately, you’d have to go through various credit checks at the bank, and they might still decline you. So as a convinced HODLer, the bank isn’t an option.
When holding an ERC-20 asset, you could go to Maker. However, you’d still have to supply 200% of the loan you are looking to take out, which is quite a lot, and you’d miss out on staking rewards.
With Venus Protocol, you can deposit your crypto asset into the protocol using the intuitive UX. vTokens will then represent your asset. So if you deposited Ripple, your collateral would be shown as a vXRP.
In the next step, you can go ahead and mint VAI stablecoin against your collateral, which you can then on exchange turn into fiat and pay the down-payment for your new home. All without giving up your crypto holdings and while still benefitting from earning interest on your collateral.
Interest rates on Venus protocol are set by curve-yield that’s automated and based on the specific market demand. So if demand is high for a particular market, lenders can earn more interest, just like interest rates on other lending protocols such as compound vary with the market.
Like other decentralized stablecoins, VAI isn't backed by dollars held in a bank account but by a basket of collateral and the safety mechanisms implemented in the Venus protocol. Governance is an essential element in ensuring that the peg of one VAI = 1 dollar is maintained. If the peg is disattached, a governance process is initiated to change parameters to bring back the value closer to the peg by changing supply and demand.
As volatile crypto-assets back all VAI, prices are closely monitored. Since smart contracts don’t connect with the real world directly, Venus Protocol relies on Oracles like Chainlink to provide them with reliable price data. If a loan falls below a certain threshold, the collateral will be liquidated (sold) to ensure that VAI can maintain its peg. If after liquidation there is collateral left, it will be returned to the borrower.
The Venus Protocol token: XVS
Like other DeFi lending and borrowing platforms, Venus protocol isn’t governed by a central entity but by its users and network participants. As a result, anyone with enough XVS can bring forward proposals on changing parameters such as adding new collateral options, improving the product, or changing fees.
XVS is a BEP-20 token with a maximum supply of 30,000,000. 79% of the supply is distributed to ecosystem participants through ecosystem mining, also known as yield farming.
Yield farming: describes the distribution of a platform's native governance token as a reward to traders providing liquidity to the platform by depositing their assets.
As the adoption of cryptocurrencies grows, traders and token holders will look for new ways to leverage their holdings. Venus Protocol provides a capital-efficient way for borrowers looking to take out a stablecoin loan without missing out on interest. And the additional XVS that can be earned is an added benefit, as the price of XVS reached $150 at an all-time high earlier this year.
XVS will be trading on Bitcoin.com Exchange with USDT pair.