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Decentralized finance (DeFi) is still one of the fastest-growing sectors in the world of cryptocurrency and blockchain after first making its big appearance on the scene in 2020. The growth of DeFi is one of the main “culprits” for the struggles currently faced by the Ethereum blockchain, with users having to pay exorbitant fees for their DeFi transactions. With users looking for more efficient alternatives, a multi-chain DeFi ecosystem has been established thanks to blockchains like Binance Smart Chain, Solana and Avalanche.
Venus is a decentralized money market protocol that enables cryptocurrency holders to earn interest on their crypto, and borrowers to access liquidity. Venus is deployed on Binance Smart Chain, a blockchain platform that has attracted a large userbase thanks to its fast and efficient transactions. Through the Venus protocol, users can also mint stablecoins by supplying cryptocurrencies as collateral. Therefore, Venus essentially combines the functionality of Compound and MakerDAO into one protocol on the Binance Smart Chain blockchain.
The interest rates for lending and borrowing cryptocurrencies on Venus are determined by supply and demand. As is often the case with crypto asset lending, stablecoins typically offer the highest interest rates for borrowers. However, this can change due to important market events. For example, the interest rate for BNB can see a sharp increase when Binance is hosting a Binance Launchpad token sale, which typically drives up demand for BNB.
As an interesting fact, we should mention that Venus made its debut in October 2020 through Binance Launchpool, where users could earn the protocol’s XVS tokens by staking BNB, BUSD and SXP. Now that we know some basic information about the project, let’s go through a quick explanation of how the Venus protocol actually works.
How does lending and borrowing on Venus work?
When you supply (deposit) cryptocurrency to the Venus protocol, you will receive vTokens representing the underlying collateral. When users want to withdraw their collateral, the corresponding vTokens are burned. vTokens can be used just like any other token on Binance Smart Chain, but in most cases you will want to just simply hold them in your wallet to avoid complications.
Users who want to borrow cryptocurrency from the Venus protocol must first provide collateral. Venus requires overcollateralization, and users can borrow up to 75% of the value of their collateral (the collateral ratio varies depending on the specific cryptocurrency).
Here, it’s important to say a few more words about vTokens, which are at the core of how the Venus protocol functions. Every cryptocurrency that’s supported by Venus has a corresponding vToken. Users who supply crypto to the protocol earn interest by holding the corresponding vTokens. The exchange rate between the original crypto and the corresponding vToken changes over time (in favor of vTokens) to reflect the interest being earned by the lender. When you want to withdraw the crypto you supplied, you redeem your vTokens and receive a bigger amount of crypto than you originally deposited. The amount you receive will depend on the interest rates and the amount of time you held your vTokens for.
Key assets in the Venus ecosystem
Now, let’s take a look at the crypto assets that make up the Venus ecosystem. We’ll be going through the assets that you can lend and borrow through the protocol itself, and dedicate some special attention to XVS and VAI.
How many assets does Venus support?
At the time of writing, Venus supports lending and borrowing for more than 20 different cryptocurrencies. Of course, the protocol supports major Binance Smart Chain native assets like BNB, SXP and CAKE. Thanks to wrapped tokens, Venus also supports coins like BTC, ETH, XRP and other important crypto assets. Here’s a few examples of the cryptocurrencies supported by the Venus protocol:
- Bitcoin
- Ethereum
- Binance Coin
- Tether
- Cardano
- USD Coin
- XRP
- Polkadot
- Binance USD
- Litecoin
The XVS governance token
XVS is the governance token of the Venus protocol. Holders of the token can participate in the decision-making process for the most important parameters of the Venus platform, such as fees, supported collateral types, implementing new features, and so forth. XVS holders can participate in governance directly or delegate the voting rights associated with their tokens to a delegate they trust to make sound governance decisions. Users can buy XVS on the open market or earn them as rewards when using the Venus protocol.
20% of the XVS token supply was distributed to participants in the Venus Launchpool program on the Binance cryptocurrency exchange. 79% of the supply is reserved for ecosystem mining, which essentially means rewarding users for interacting with the protocol. The remaining 1% is reserved to support the Binance Smart Chain ecosystem.
The VAI decentralized stablecoin
An important aspect of Venus is VAI, a decentralized stablecoin that users can mint and redeem through the protocol. VAI is designed to maintain a $1 peg, and is collateralized by crypto assets.
Users can mint VAI using the vTokens received from Venus protocol as collateral. Up to 50% of the value a user has on the protocol in the form of vTokens can be used to mint VAI stablecoins. By depositing VAI stablecoins into the Venus Vault, users can also earn interest on their holdings.
VAI operates in a similar way as DAI, the most popular decentralized stablecoin on the Ethereum blockchain. Its main advantages are providing a decentralized stablecoin option for Binance Smart Chain users, as well as its seamless integration with the Venus protocol.
Using Venus through the app.venus.io interface
The Venus protocol operates entirely on the blockchain, but most users will interact with it through a GUI (graphical user website), which provides the same user experience as a normal website. The most widely used interface for interacting with the Venus protocol is app.venus.io, which gives access to all the key features of the Venus protocol. This interface supports popular cryptocurrency wallet options like MetaMask, Trust Wallet, WalletConnect and Binance Chain Wallet.
Through app.venus.io, users can get a complete overview of the Venus protocol’s markets. You can find the current supply and borrow APYs for all of the assets supported by the protocol, active governance proposals, XVS rewards distribution, and more. Before you get started with using Venus protocol, you’ll need to have some BNB in your wallet to pay gas fees.
Here are the main sections of the app.venus.io interface:
- Dashboard – Provides an overview of the market conditions on Venus protocol, as well as the user’s balance, available credit and borrow limit. After connecting their wallet, users can start lending and borrowing from Venus protocol in this section. Through the Dashboard, users can also mint VAI stablecoins or repay the VAI stablecoins they borrowed from the protocol.
- Vote – Users who have locked their XVS tokens in the XVS vault can use this section to vote on Venus protocol governance proposals.
- Market – Detailed information about the supply and borrow markets on the Venus protocol.
- Vault – In this section, users can stake their VAI or XVS tokens to earn additional XVS rewards.
- Transaction History – An overview of the most important blockchain transactions related to Venus protocol.
It’s important to remember that there’s no such thing as a risk-free way of making a profit, and this is especially true in the highly volatile cryptocurrency market. When using the Venus protocol, it’s important to keep an eye on your Borrow Limit. If your Borrow Balance exceeds this limit, your position could be liquidated, either partially or fully. When your loan is liquidated, you will not lose the entire collateral – instead you will essentially have to pay a fee to the liquidator.
You have to be especially careful with managing your position if the cryptocurrency you provided as collateral is rapidly losing its value, or the cryptocurrency you borrowed is rapidly gaining value.
The bottom line
Venus is one of the top-tier decentralized finance protocols on the Binance Smart Chain blockchain. At the time of writing (January 2022), only PancakeSwap has a higher TVL (total value locked). The project has achieved its success by successfully combining the functionality of Compound and Maker, giving users a one-stop solution for their most important DeFi needs. If you want more detailed information on how the Venus protocol works, you can check out the Venus whitepaper or the project’s technical documentation page.
