Venus is a fully dencentralized marketplace for lenders and borrowers founded by the creators of Swipe, and aims to provide a service similar to MakerDAO on Binance Smart Chain. You can read their whitepaper here.
Venus allows users to supply collateral to the network, which can then be borrowed by other users who pledge their own over-collateralized cryptocurrencies. Unlike Celsius, cryptocurrency that is currently being supplied to the market continues to provide the user with APY, even if they're borrowing against those assets.
There are two native tokens on Venus: XVS (orange), which is the governance token, and VAI (green), which is the synthetic stablecoin that can be minted through the application.
Step-by-step Walk-through
- You are holding BNB, and want to continue to hold it for the foreseeable future.
- You deposit your BNB into Venus, and then supply it to the market.
- You will earn an interest rate of 5.32% annually in the form of BNB.
- You will earn an interest rate of 8.03% annually in the form XVS.
- This is a net interest earned of 13.35% annually.
- You can now decide to put your BNB up as collateral.
- You can now borrow against up to 60% of your collateralized assets.
- You decide to borrow USDT.
- You will pay an interest rate of 4% annually.
- You will earn an interest rate of 2.74% annually in the form of XVS.
- This is a net interest due of 1.26% annually.
- Including the yield from supplying your BNB, your net APY in Venus will be around 12%.
Instead of borrowing USDT, you can also mint VAI which does not accrue any interest. You can also stake you VAI and earn an interest rate of 22.52%. Note: VAI is currently trading below peg. Let's pretend you minted 1000 $VAI. Since VAI is currently trading at 0.9288, when you purchase something worth $100, you will actually have to pay 107 $VAI. When VAI does return to peg, when you convert that asset back to VAI, you will only receive 100 VAI. You used 107 $VAI, but received 100 $VAI in return. You will have to pay that $7 difference through your other assets.
Continuing to Hold and Receiving Assets to Use
Venus allows you to continue to hold onto your long-term plays like BTC, ETH, BNB, and so on while receiving assets that can be put to work in different places. You will have to decide how risky you'd like to take that, but you could even do something relatively safe like borrowing DAI and BUSD, and pooling them in the Cub Finance DAI-BUSD LP for a ridiculous 129% APR.
Risks
As I had mentioned in my post about Celsius, there are very obvious risks involved with collateralized lending. You are borrowing assets based on the value of your assets. In the event of your assets declining in value, Venus may end up liquidating your position to ensure you can repay your loan.
How you decide to utilize your borrowed assets adds even further risk. For example, you decide to borrow USDT, and then purchase a coin you expect to appreciate in value. If the opposite happens, you will still owe the full amount of your loan while having an asset that is worth significantly less.
A Note on the Borrow Market APYs
If you look at the below screenshot, you will notice one thing that seems to stand out:
Borrowing stablecoins comes with an interest rate, while borrowing other assets comes with a negative interest rate. The distribution of XVS for borrowing means that you are being paid to borrow these other assets. It is important to remember how exactly your credit limit works.
When you supply your assets to the market, your available credit will be equal to 60% of the market value of those assets.
When you borrow assets from the market, the amount you borrow is equal to the market value of those assets.
This means that borrowing assets that can fluctuate in value can cause your borrowing balance to grow, and eventually go above your credit limit.
When I first launched Venus, I had borrowed BNB. After a few hours, the price of BNB rose slightly, which increased my amount borrowed by a few percentage points. I realized that borrowing BNB, when I personally expect to increase in value over time makes no sense. I decided to repay the BNB, and then take out USDT instead. The next day, the price of BNB went up 10%. I had originally taken that BNB and split half of it into BUSD to pool in an LP. Had I left my loan in the form of BNB, I would have had to pay over one hundred dollars extra for my loan due to me converting half of it at the lower price.
Take the time to consider your own financial situation, and risk tolerance. This is adding layers of risk onto your investments in cryptocurrency, and each layer can result in losses.
Incoming Airdrop
Venus is introducing a third token to it's ecosystem: the Venus Reward Token ($VRT), which will be the liquidity incentive token for Venus. This will make XVS more scarce as it's emission rate will be reduced as VRT becomes the main reward for supplying assets to the market.
There is going to be an airdrop "soon™️" that will be paid out to Venus users that stake (supply) XVS at a rate of 1000 VRT for every 1 XVS staked. I can't say I'll know the value of VRT, or whether or not it'll be worth going and purchasing XVS at the current market rates which have been inflated due to the upcoming airdrop.
If you do decide to go down this route, make sure you double check that the airdrop hasn't already taken place.
In Conclusion
I've been using Venus over the last few days and have been able to take advantage of holding onto my long-term assets while getting some cash to throw into other projects. While I try and play on the safer side of things, any sort of significant crash in my collateralized assets would be fairly detrimental as my cushion is relatively small. Similarly, if the places I parked my borrowed funds turn sour, I would have to find other ways to go and pay back the borrowed amount.
This material, and any responses below, have been prepared for informational purposes only, and is not intended to provide, and should not be relied on for investment or financial advice. You should consult your investment, or financial advisors before engaging in any transaction.