Venus Protocol — Update

This post was originally published on Venus Protocol

Venus Protocol — Update

On Thursday January 14, 2021, the Venus Protocol had listed the Swipe Ignition project Cannon (CAN) on the Venus money market with a wrapped CAN token on Binance Smart Chain (BSC) representing 1:1 to the CAN on the Ethereum Blockchain.

Without getting into the theatrics of the surrounding facts, we wanted to update the community on a series of events and timelines that occurred with this listing.

When the project was listed, Swipe’s OTC Desk created a pegged CAN token so that users can easily migrate to BSC before a decentralized bridge was open. Shortly after the listing, one pre-sale participant (the “Buyer”) wanted to exercise his “DeFi-use” clause and migrate his CAN that were custodied on Swipe Wallet to BSC. This is a long time institutional OTC client of ours who participated in the pre-sale, so in theory this was no issue.

Shortly after the listing of CAN on BSC, the Buyer decided to supply his entire allocation of approximately 450M CAN tokens (45% of the total supply) into the protocol. The Buyer then proceeded with taking out loans through two accounts borrowing BTC and ETH from the protocol. The Buyer then converted the assets from BSC wrapped to native and withdrew them from our OTC desk.

This caused a huge problem for our clients who noticed this immediately and began to withdraw assets out of Venus. We immediately froze the bridge to prevent more assets coming over for any other person to duplicate this issue on what the Buyer was doing, and attempted to reach the Buyer, but was unable to get ahold of them at the time. Swipe, with the help of internal and external folks, quickly came up with the decision that our users are more important that any possible blame, so we covered the 2,000 BTC and ETH liquidity on Venus within an hours-time so that our users could deleverage their positions and withdraw their assets on our dime.

We proceeded with this thought that if we supplied this collateral to Venus that in the long-term the situation would improve and we could possibly eventually get these assets supplied for our users out. However, this rationale was not the deciding factor as this was a “maybe”. Swipe and the various teams were willing to part with these assets to ensure that the protocol wouldn’t have harmed people.

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The problems root cause was poor risk management efforts in adding this asset to Venus without proper checks and balances. We did so hasty to promote our ecosystem projects and to bring them into a high-class environment. . However, we did not take the risk/reward analysis and our team failed in this remark. Therefore, it was our duty to ensure we made the situation “right”. While I personally did not oversee these various steps throughout, I do bare the responsibility being the CEO.

After a few hours have gone by, we finally got in touch with the Buyer. We expressed our concerns about their actions and what reputational risk they had just caused us. Being long-time client, he was amicable to resolve the problems without confrontation and potential legal disputes. They expressed their side of the story, but we all knew what needed to be done to quickly resolve this issue. In my opinion, he was acting disingenuous and took advantage of a situation at first, but made it right at least second. We subsequently have terminated our relationship with this Buyer and his company.

Shortly after the Buyer said they would consider our request to return the funds (and by request, we mean that the Buyer technically/legally did not have any breach of contract at the time) they informed us they would return the funds.

The client then provided the native assets he withdrew back to us and we wrapped them back into BSC so that the Buyer could de-risk his position and we could withdraw back our liquidity we just provided. Win-Win (not so fast).

Now that we have gotten our initial liquidity out of the platform and have had the user pay back most of his loans, there were still a few remaining issues at hand.

  1. The Buyer was still in possession of a big chunk of CAN that could be re-supplied to Venus and re-borrowed. (Biggest issue)
  2. The Buyer still has collateral on the protocol which he could in theory use. (medium issue given the size)
  3. The Buyer still was pushing back on some points.

We agreed that it was in everyones best interest due to the state-of-the-protocol and issues at hand, after a lengthy conversation, to return his remainder of withdrawn CAN back to his Swipe Wallet into the ETH version. The Buyer eventually fully agreed and we took a further risk control by burning the remaining CAN tokens on-chain.

With that said, the only risk to the Venus protocol at this time from CAN tokens would be the remainder of the supply (~$15m). To further take action on this to ensure protocol security as we migrate to the main Governance network for Venus, we have disabled this market from Venus to prevent additional harm.

Given the facts laid out above, we have successfully thwarted our first major platform issue. Internally at Swipe/Venus we will review many of our policies and procedures to see where we can improve.

To end on a positive note, sometime tomorrow January 15th, the Venus Protocol will be fully decentralized and operated by XVS holders. The team will no longer have admin keys or centralized support of the protocol given its maturity point. We will stay active within the development and governance community to help constantly assist in its next phases. We appreciate everyones cooperation and patience in the matter.

Thank you,

Joselito Lizarondo


Venus Protocol — Update was originally published in Venus Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

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