[BNB Chain] THE Market Bad Debt Repayment

Venus Governance Venus - Governance Proposals
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Title: [BNB Chain] THE Market Bad Debt Repayment

:warning: Disclaimer: All USD values referenced in this post were estimated as of several days ago and may not reflect current market prices.

Summary

On March 15, 2026, Venus Protocol’s THE (Thena) market on BNB Chain was targeted by a sophisticated attack that exploited a supply cap bypass and price manipulation, resulting in significant bad debt. This proposal addresses the full repayment of ~$2,203,024 in total bad debt covering both the debt generated by the March 15 incident and all accumulated bad debt from prior events, sourced from the Venus Treasury and Risk Fund.

Background

On March 15, 2026, an attacker executed a premeditated exploit against the THE market on Venus Protocol. A full technical breakdown is available in the THE Market Incident Post-Mortem.

In brief, the attack combined three compounding weaknesses:

  1. Supply cap bypass via the donation mechanic: Venus’s Compound-forked architecture allows direct token transfers to vToken contracts, bypassing the mintAllowed() supply cap check. This allowed the attacker to inflate the vTHE exchange rate by donating ~36M THE directly to the contract, multiplying their borrowing power without triggering supply cap enforcement.
  2. Price manipulation via thin liquidity: The attacker accumulated ~84% of the THE supply cap over nine months, then executed coordinated buy pressure to drive THE’s price up on both the RedStone (primary) and Binance (pivot) feeds that Venus’s Resilient Oracle relies on. Once both feeds converged at the elevated price, the protocol began valuing THE collateral at the manipulated rate.
  3. Illiquid collateral concentration risk: The mismatch between THE’s nominal collateral value and its realisable liquidation value meant that when cascading liquidations unwound ~42M THE, the protocol could not recover the full debt.

The first two accounts in the debt table below represent the positions directly attributable to the March 15 attack. The remaining accounts represent accumulated bad debt from prior protocol events, all of which will be resolved in full through this VIP.

Details

This Venus Improvement Proposal (VIP) settles all outstanding bad debt across 19 assets on BNB Chain’s Core Pool, totalling ~$2,203,024 (USD values as of several days ago).

Repayment Funding

The bad debt will be repaid using a combination of token holdings from the Venus Treasury and liquid assets from the Risk Fund, covering all affected assets in full.

Full Bad Debt Breakdown

Token Token Amount Est. USD Value
CAKE 1,184,192.16 $1,781,492
THE 1,919,128.96 $347,724
DAI 57,834.42 $57,833
BNB 15.15 $10,231
ETH 1.60 $3,720
USDT 1,611.07 $1,611
WBNB 0.21 $139
XRP 89.67 $138
BTCB 0.0011 $83
BCH 0.0365 $17
LTC 0.137 $8
LINK 0.729 $7
ADA 24.70 $7
USDC 4.72 $5
AAVE 0.0376 $5
DOGE 38.93 $4
SXP 16.77 $0.21
FIL 0.168 $0.16
TUSD 0.014 $0.01
TOTAL $2,203,024

Action

This VIP consists of 2 key actions on BNB Chain:

1. Transfer of Token Holdings from the Venus Treasury

  • Transfer available CAKE and THE holdings from the Venus Treasury to repay the corresponding bad debt positions

2. Transfer of Liquid Assets from the Risk Fund

  • Transfer USDT and BNB from the Risk Fund to cover the remaining bad debt shortfalls across other tokens

Summary

If approved, this VIP will:

  • Fully repay ~$2,203,024 in total bad debt across 19 assets on BNB Chain’s Core Pool
  • Restore Venus Protocol’s balance sheet to a clean state and demonstrate the protocol’s commitment to sound risk management

We welcome community feedback on this proposal ahead of submitting it for a VIP vote.

2 Likes
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This proposal is an important step in repairing the protocol’s balance sheet through the repayment of bad debt. However, it does not address a key aspect of the March 15 incident: the users who were liquidated as a direct result of protocol-level vulnerabilities.

The events leading to the exploit were not purely driven by market dynamics or user decision-making. Rather, they stemmed from structural weaknesses, including the ability to bypass supply caps via direct donations and the susceptibility of the oracle system to price distortion in low-liquidity conditions. These are design-level risks inherent to the protocol.

Consequently, the liquidations that occurred during this period differ fundamentally from standard, market-driven liquidations. Positions were unwound based on inflated collateral valuations that the protocol itself recognized as valid at the time.

This distinction has important implications:

• From an ethical perspective, users should not be expected to absorb losses originating from preventable or known design limitations.
• From a strategic perspective, leaving user losses unaddressed may undermine trust, user retention, and broader institutional confidence in Venus.

While resolving bad debt restores the protocol’s financial position, addressing the impact on affected users is essential to restoring trust.

For this reason, it would be worthwhile for the community and risk team to explore a complementary proposal aimed at assessing and compensating users who were liquidated as a result of this incident. Even a partial or criteria-based approach would demonstrate accountability and reinforce Venus’s commitment to user protection.

A prompt response is particularly important. Narratives around protocol incidents tend to form rapidly and can significantly influence user perception and capital flows. Early reactions on social platforms already suggest a growing perception of repeated failure, highlighting the need for a clear and decisive response.

Taking steps to address user-level consequences would not only mitigate losses tied to protocol design issues, but also signal that Venus stands behind the integrity of its own risk framework. This is key to maintaining credibility and supporting long-term confidence in the protocol.

Failing to act risks fixing the balance sheet while allowing reputational damage to persist.

1 Like
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While addressing the bad debt is a necessary step for the protocol’s financial health, this proposal completely ignores the users who got liquidated due to the exact same exploit.

The liquidations on the $THE market were not caused by poor risk management or natural market volatility. They were the direct result of a protocol-level vulnerability specifically the looping mechanic and price manipulation that bypassed the intended supply caps. You cannot expect users to manage their health factors against structural failures.

Ignoring the victims sends a terrible message to current and future depositors about how Venus handles protocol vulnerabilities.

1 Like
4

Can you share a Dune Bad Debt panel/dashboard? We used to track it within Chaos Labs but as expected that one is not available anymore

1 Like
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This proposal is an important step in repairing the protocol’s balance sheet through the repayment of bad debt. But the protocol should not compensate the users for the losses. This case is not a protocol error. THE price manipulation took place on the Binance network.
Stop robbing Venus Protocol!!!