When trying to find the best DeFi protocol on the Binance Smart Chain, it can be hard to try and figure out which suits your needs. One of the first places to start is to go hop on over to Defistation. Here, you can see a list of some of the most popular protocols on BSC based on the total value locked. These are not all the projects that are on Binance, but they are where most users are heading.
One such project is the Venus protocol. As you can see, it is rated second on the website as the go-to protocol for users who wish to deposit their crypto to lend out and/or borrow. But, what is it about Venus, and why is it so popular? Isn’t it just another lending platform?
Well, that’s what this Venus Protocol review article is going to attempt to answer. We will outline the issues Venus is trying to solve, its unique features, what is in store for it in the future, and whether or not it has what it takes to become the Aave on the Binance Smart Chain.
What is the Venus Protocol?
Venus is an algorithmic money market protocol launched exclusively on Binance Smart Chian. It was designed and forked from Compound and MakerDao. It is also a synthetic stablecoin protocol—more on that in a bit. The development of the Venus project is being developed by the Swipe project Team. It was launched back in early October 2020.
Venus was developed to solve two issues. The first is to continue to support the eventual mass adoption of decentralized finance against the traditional financial market. Secondly, there is a recurring issue of several DeFi projects that offer either a lending/borrowing feature or minting collateralized stablecoins. Venus sought to solve this issue by integrating both features into a single platform, and therein lies its uniqueness.
The protocol is a simple-to-use but typical crypto-asset lending and borrowing solution to the decentralized finance ecosystem. Like any other lending platform, users can deposit certain crypto assets to lend them out to borrowers whilst earning compounded interest rates. With such supply, borrowers can borrow those certain crypto assets, provided they over-collateralize the amount they borrow and pay the interest rates when they return it.
That’s all well and good, but the uniqueness of this platform is that users can also use their deposited crypto as collateral in order to mint its synthetic stablecoin, VAI. This is similar to the MakerDAO that mints DAI, but the main difference is that while on the MakerDAO users can only deposit ETH in order to mint DAI, Venus allows you to deposit any crypto-asset it currently lists on its platforms in order to main VAI, while also earning compounded interest rates for those deposits!
Both VAI and the protocol’s native token, XVS, are BEP-20 tokens. While VAI is pegged to the US dollar, making its price stable, the XVS token is the protocol’s governance token and, like any other utility token, is subject to price volatility.
As per the graph below, the price of VAI has been relatively stable.
Another interesting feat about the protocol has to do with the interest rates depositors earn on their crypto. While their earnings are compounded, depositors only earn a portion of those earning in the crypto that they have in deposit. The other portion they earn is in XVS. Borrowers, to get to earn the XVS token. They get a ‘discount’ on the interest rates they have to pay by simply borrowing from the protocol. In return, they earn XVS. Users who mint VAI also have the opportunity to earn XVS if they deposit those synthetic stable coins on the protocol. According to their Whitepaper, 20% of the total supply was allocated to the Binance LaunchPool projects, where users can mine (farm) them. The rest of the supply was to be mined on the protocol itself over a period of approximately 4 years. Liquidity mining for XVS was distributed between borrowers (35%), suppliers/lenders (35%), and stablecoin minters (30%).
In projects like Compound and MakerDao, control is prioritized over stakeholders and private equity funds while limiting distribution capabilities. Venus, however, has no allocation or pre-distribution terms, creating a fair-token disbursement. The XVS token can also move freely from cold storage to other users or be hedged against other assets. Other protocols also limit the mobility of earning assets. For example, if someone wanted to mint stablecoins using their assets they would need to move it into a smart contract with no earning benefit for those assets.
This makes Venus a truly community-centric protocol within the DeFi ecosystem since any user can either earn XVS or buy it; this means that right from the outset, it is the community that will have full control over the project. Neither the founders, developer team, or early investors were allocated any XVS tokens.
The outlook of the protocol is fairly easy to comprehend and understand. Below you can see an interface example once you connect your wallet.
Currently, you can deposit the following tokens on the protocol; SXP, USDC, USDT, BUSD, BNB, BTCB, ETH, FIL, LINK, LTC, XVS, BETH, DAI, ADA, DOT, XRP, BCH, and DOGE.
The protocol work is fairly simple. Once the users connect their wallets to Venus, they can click on which crypto asset they wish to deposit. After supplying it, you instantly begin to earn those interest rates, which are compounded. Please note that the APY is based on supply and demand. The more the token is being borrowed, the higher APY will be. Once that is done, you will see in your wallet another token suddenly appearing. This is a vToken, and it is a protocol-created pegged asset for all deposits made. Consider it as a kind of receipt or representation of the tokens you deposited. It is essentially the same as the atokens that Aave gives to depositors. What is great about tokens is that you can move them to other wallets if needed and connect that wallet if you wish to take out your deposit. You are not required to use the original wallet that you used when you first made the deposit. This gives extra security to users.
If users who already made a deposit wish to borrow, they will have to authorize it by sliding the button where it says ‘Collateral’ as shown on the diagram above. Once that is done, you can just click where it says ‘Borrow Market’ and can borrow any crypto asset. On the top middle, you have a Credit Borrow Limit, which can help you know up to how much you can borrow a crypto asset. Please note that unless you deposited a stablecoin, your borrowing limit would vary depending on the price of the crypto that you deposit. Like any other decentralized lending platform, should your borrowing amount exceed the limit, you will face liquidation. The interest you will need to pay for the amount borrowed will start immediately and will continue to accumulate the longer you continue to borrow it. However, as it above, just the fact that you are borrowing allows you to earn XVS tokens which, depending on the price, decreases the amount of interest you will need to pay. Consider it as a discount.
For minting VAI, users just need to go where it says ‘Mint VAI’ and mint the amount you would like to mint. Please note that just like borrowing, the amount of VAI you can mint will depend on the price value of the crypto you deposited. However, instead of having to pay interest rates, minters instead only have to pay a very small (0.01%) one-time fee, and that is it! You can either deposit your VAI in the vault to earn XVS or use it on other DeFi protocols.
There is a max supply of 30 million XVS tokens. According to CoinMarketCap, 10,148,533 have already been farmed and are in circulation.
Venus Protocol’s XVS native token acts as its governance token. Holders of XVS can vote on all kinds of initiatives ranging from adding new assets for collateral to changing parameters on the contract. XVS can be bought, but users can also earn $XVS on the platform through ecosystem mining. The maximum number of tokens is set at 30,000,000 XVS
On February 13, 2021, Venus posted their 2021 Roadmap on Medium. Some of the plans that the community has for the protocol is the following;
– Venus Origination Fees will be adding a small fee (0.01%) for depositing/withdrawing, which will be added to the reserve to the community to decide on what to do with it (further development, burning XVS, providing grants, etc.)
– A decision will be made whether to list Cardano’s ADA token for lending and borrowing.
– A Venus Improvement Plan (VIP) is going to be proposed to increase the collateral factor for borrowed assets from 60% to 80%.
– An upgrade will be made to allow users who staked XVS in the protocol to be able to vote on proposals.
– A proposal will also be made to add a fixed rate market feature for both the lender and borrower, so they will both know how much they will earn and pay in interest upfront without utilization factors.
Venus Reward Token & Reducing XVS emission reduction.
Another upgrade that was proposed on their roadmap and has been somewhat implemented is the introduction of the Venus Reward Token. In an AMA, the decision was made to reduce the emission rate of XVS in order to reduce the inflation rate of the governance token. This naturally means that users will be receiving fewer rewards for lending and borrowing. To offset this, the decision was made to introduce the Venus Reward Token (VRT) to enhance APY.
On May 9, 2021, the VRT Whitepaper was published. According to the Whitepaper, the utility of VRT can be broken down into four categories.
Users using the Venus protocol for lending, borrowing staking supported digital assets will be rewarded with VRT tokens. The market distribution speed for VRT will be 50% for borrowers and 50% for lenders.
It is planned the VRT will eventually be used to pay withdrawal fees in VRT rather than the digital assets users are withdrawing from the protocol. For example, when a user is withdrawing their BNB from the protocol, instead of paying the base fee for that withdrawal in BNB, VRT will instead be used to pay that fee.
Once there are sufficient trading/liquidity markets available, VRT will also become a supported asset. The means that users can deposit VRT to lend them out and/or borrow against to earn/pay interest rates on it.
VRT will be the exclusive digital asset to purchase VENUS collection NFTs. A portion of the VRTs used to pay for these NFTs will be added to the Venus lottery. The lottery system will be decentralized, and tickets can only be purchased in VRT.
VRT has no governance features. It is simply a reward distribution token for users, similar to TFUEL on the Theta network.
To distribute these VRT tokens, an Airdrop was scheduled and executed on May 15 and finalized on May 24. All vXVS holders received a 1000 VRT:1XVS ratio airdrop. Eventually, the plan is for users to farm both XVS and VRT tokens on the protocol. Once VRT has sufficient trading markets, the XVS emission rate is to be slowly reduced, allowing the minting of the remaining XVS to be stretched out over a period of 8 years.
On an April 28 Medium article, it was announced that VRT was to have a total supply of 30 billion.
Some members of the Venus community have expressed skepticism, if not outright criticism, of the addition of this new token. Their reasons stem from questioning why a new token is needed when those same utilities (rewards, fees, collateral, gamification) can easily be added to the XVS token, giving it much greater utility and hence, allowing its price to go up.
On January 30, 2021, a proposal was submitted for the reserves of funds to be used for buying back and burning XVS tokens in order to make it deflationary and thereby increase its price. The concern arose out of the limited use case for the token. Currently, it is both a governance token, as well as having monetary value for mediums of exchange; However, once all the XVS tokens have been minted, it will only have a value of being a governance token, probably reducing its monetary value.
Sometime later, the proposal was passed and is expected to be executed sometime this year. No decision has yet been made as to when the burning will take place, nor how much XVS will be burned.
As with all emerging DeFi projects, Venus has the advantage of being one of the first lending platforms on the Binance Smart Chain. However, it is by no means the only one.
Two other emerging protocols that are offering or are going to offer lending/borrowing services are ForTube and planet.finance. ForTube has been around for quite a while and is already a well-established lending platform. It is currently #17 on Defistation with a total $159.729 million total value locked (TVL) in its vaults. planet.finance is even newer, having been launched just a few months ago (at the time of writing this article). Although they have yet to launch their green planet (lending/borrowing), it is only a matter of time. In addition, planet.finance is an aggregator DEX. Similar to yearn.finance, users can deposit their crypto-asset on the protocol to allow it to direct these funds to other protocols that offer the highest yield. In addition, users can also earn its native token, AUQA, which has a limited supply of 100,000, and it is deflationary, with burns happening a few weeks or so.
We also cannot forget other platforms on Ethereum. Aave and MakerDAO are just a few of the other projects that offer the same features that Venus has. Although Venus does have a first move advantage on BSC, it was not the first lending platform within the entire crypto ecosystem. That acknowledgment goes to protocols such as Aave and MakerDAO, which have seen rapid growth in the last year, and they are some of the most well-known, used protocols. Venus, despite having $2.501 billion TVL, is still new and not as well known.
Below are a few videos that outline further information about Venus Protocol, as well as a step-by-step guide on how to deposit/borrow crypto.
Venus Protocol Review – Conclusion
In conclusion, the Venus Protocol offers unique services. Taking the component of lending and borrowing with minting a synthetic stablecoin, Venus was able to conjoin two separate entities into one. In addition, there are plans to add NFT-based products on the platform, as well as to add additional crypto assets for users to deposit and borrow against. So it does seem that the protocol has a well-thought-out roadmap with a bright future.
However, it does need to be said that it will be facing severe competition from other protocols on BSC and on other blockchain platforms. New DeFi projects are emerging and being launched almost every day, making it quite hard for Venus to bring in new users, and this is not including those that are already well established, such as Compound, Aave, and MakerDAO. In addition, there is some controversy over the release of its Venus Reward Token. Some community members are not happy with the arrangement, while others see it benefit. However this might turn out, the project is far from finished, and it has plans to continue developing and adapting to the ever-increasing situations and circumstances in the DeFi sector. Taking its name from the planet Venus, it can be assured that so long as it continues to develop, the Venus protocol will be one of those projects that will continue to outshine its competitors.
Venus Protocol Review
- Ease of Use
- Easy to use
- Funds are over-collateralized
- Able to borrow and mint synthetic stablecoin
- New protocol, able to earn XVS tokens along with interest rates
- Restricted to lend and/or borrowing
- Only one audit has been completed