A lurid narrative unfolded recently in the cryptocurrency realm as a notorious wallet linked to an infamous chain exploitation underwent a forced liquidation, sparking tensions within the volatile crypto market. This involved the Venus Protocol, a lending platform that had loaned over $150 million worth of stablecoins to this wallet.
The wallet’s liquidity crisis was triggered by a sharp fall in the prices of BNB to $209, leading to the manual liquidation of over 6.89 million Venus BNB (vBNB) tokens worth $30 million by the BNB Chain developer team. This action was in accordance with a governance vote that took place in November 2022.
For those unfamiliar with the term, liquidation in the crypto context is similar to receiving a margin call in the stock market. When a trader cannot meet the margin requirements for a leveraged position or doesn’t have enough funds to keep the position open, their leveraged position is forcibly closed, and assets sold off.
Interestingly, this is the second such event in recent weeks, with last week witnessing the liquidation of $60 million from the exploiter’s loan across two transactions. Venus, which runs on the BNB Chain network and holds over $620 million worth of multiple tokens, has seen $480 million being borrowed by users.
A wallet tied to a notorious BNB Chain exploiter, who pilfered more than $100 million in BNB tokens last year by manipulating a network bridge tool, was identified as one of these borrowers. They borrowed $150 million in stablecoins, using the stolen BNB tokens as collateral. However, falling BNB prices threatened the liquidation of this colossal loan, prompting concerns about a possible abrupt market crash.
With such a situation comes the potential to disrupt the multi-billion dollar decentralized finance ecosystem that’s been built on BNB Chain. This connection is evidently leading the Venus and BNB Chain developers to combat the risk together.
Their joint statement outlined concerns about the potential damage a massive liquidation could trigger in the already volatile market, touching on the repercussions for Venus users, BNB tokens, and BNB Chain itself. In a proposal passed in November 2022, both entities expressed their commitment to work with other ecosystem players to take control of the situation if it neared the liquidation line by repaying the debt in a concerted effort.
As we continue to navigate the complexities of the crypto world, it remains evidently crucial for platforms and participants alike to proceed with knowledge, preparedness, and caution.
Source: Coindesk
