Compensation to Venus Users for WBETH Depegging

Venus Governance Venus - Governance Discussions
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Over the weekend, the crypto market experienced one of the largest liquidation events in history, and some Venus users were further impacted by the WBETH price depeg.

In our eagerness to protect users, we previously stated that Venus Labs would reimburse affected users via the protocol’s risk fund which caused misunderstanding from the community. Venus Labs is fully aware that any use of the Venus Risk Fund must be approved through a community governance vote. We recognize and respect the governance process, and the reimbursement to affected users can only go through if there is an approved VIP.

Venus is a DAO, and decisions of this scale belong to the community. We apologize for the confusion caused and appreciate the community’s swift feedback in upholding transparent governance.

Venus Labs will submit governance proposals for the DAO to decide whether to compensate affected users, providing transparent amounts and rationale for the compensations in each VIP. While we respect that the final decision rests with the community, Venus Labs supports the provision of compensation to affected users. We believe that compensating users aligns with Venus’s core values of responsibility, security, and long-term trust. Our stance is that because oracle choosing is approved by the DAO governance, any business vendor failure is a risk held by Venus Protocol, and so it is something we are prepared to be accountable for.

Venus Labs will continue to verify the claims coming in and being made as they come in on a case-by-case basis. As this will be an effort-intensive process, we expect the process to last several weeks. We aim to publish 1 VIP per week to perform the compensation in multiple batches. Each VIP will detail the wallet addresses being reimbursed as well as the amounts and situation that influenced the team’s decision to compensate the users. The community will vote on each and every outcome.

Regardless of the vote outcome, Venus Labs will continue to enhance risk and oracle safeguards to help prevent similar incidents in the future.

We remain deeply committed to user protection, transparency, and collaborative governance — the principles that have guided Venus for nearly five years. We hope that as the Venus community, you feel the same as we do about upholding those values and protecting the entire Venus community together.

Minor edits: wording for clarity

Update 1 — 17 October 2025

After gathering input from affected users and conducting a detailed review of the data and Venus’ liquidation mechanics, we’re now very close to finalising a compensation framework. The final step involves aligning our data and methodology with the findings of our risk partner, Chaos Labs.

One important detail has added some complexity to the process: during liquidations, a liquidator may choose which collateral to seize. This means that some users impacted by the wBETH price depeg may not have had any wBETH liquidated at all. Accounting for these variations has taken additional time, but ensures accuracy and fairness in our calculations.

Once the methodology is confirmed, we will begin contacting affected users individually with the proposed compensation plan—starting with the most impacted accounts. Confirmed compensation amounts will be compiled into a Venus Improvement Proposal (VIP) at the end of each week, and this process will continue weekly until all cases are resolved.

As this initiative is for the Venus community, we welcome your feedback and invite everyone to review and share thoughts on the compensation methodology once it’s published. Your participation in the upcoming vote will be an important part of ensuring the outcome reflects our community’s values.

Thank you for your patience and understanding as we finalise the details. We expect things to move more quickly once the Chaos Labs review is complete, and will share further updates next week.

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Kudos to team

Protect users paramount of Venus values, and I can’t express how much I agree and boost faith using Venus

Full support from me and Bravo !
You might have save a lots of users life

Thank you

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I support compensation measures for Venus users who suffered losses due to WBETH’s unpegging.

However, I believe the investigation into the cause and responsibility should be conducted carefully.

Based on that, I hope the parties involved will engage in thorough discussions to determine the source of compensation funds.

Ultimately, I hope the approach chosen will bring the greatest long-term benefit to Venus and XVS holders😄

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Regarding the proposal, while I remain in complete disagreement, I must know if Venus intends to seek compensation from Binance for the funds it will disburse to those affected.

Finally, allow me to address the decentralized decision-making process: given the current concentration of voting power, this falls short of a truly democratic system.

Thank you.

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Hi Masamune, thank you for your thoughtful response. Yes, each case is independent and complex, as there are various things to consider like each individual’s health factor, time of liquidation, etc. This is why we expect the process to take perhaps 2-3 weeks as we verify each individual case.

Each VIP will also contain information on how the compensation amount was determined, so the community may understand exactly what they are voting on.

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Hi Fico, thank you for your questions.

Binance’s decision was to reimburse their CEX users, and their compensation does not apply to Venus’ users. If the compensation were to go through, the compensation would come from Venus’ risk fund.

Regarding the concentration of voting power, if I am not mistaken, the majority of voting power still lies with the Vanguard delegate team. They exist independently of Venus Labs, and if majority of the delegates decide to vote against the proposal, I am sure the vote will be executed as such. As mentioned, each VIP will contain the list of accounts that will be compensated for that particular batch, along with information on amounts and how it was assessed. That way, voters can know exactly what terms they are voting on.

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Refunding users is the right thing to do here. Just put yourselves in the liquidated people’s shoes and forget about your ego for a second. Im definitely voting yes.

PS: thank you cheryl for your effort, this is the highest level of communication that the protocol could dream of.

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I support compensating the affected users; however, Venus should not incur losses resulting from third-party mistakes.
Therefore, I propose a temporary suspension of the BNB burn until Venus restores the funds that will be used to compensate users impacted by the wBETH depeg.
During this period, all BNB originally intended for burning should be converted and transferred to the Risk Fund, ensuring full recovery of Venus’s financial position.

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I support compensating affected users, and this time, communication was much better than during the WUSDM incident. However, there should be more data available. Why is there still no public report from Chaos Labs? They released a report for AAVE two days ago, but there’s still nothing for Venus. Is this included in their KPIs for Venus?

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I used Venus platforms 3 years, and I think we should help users in this case. Binance did, we have to did. If not, a lot of users will gone way

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What surprised me is that we’re asked to support speculators when we don’t even know the total amount of compensation, nor do we know what the protocol’s financial position will be after the payout. From what I’ve been informed in recent VIP updates, the situation is “exhausted,” which is why much of the Prime incentive was removed and the XVS vault rewards were cut by 50%

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I guess you don’t fully understand how the Vault APY is calculated. The APY depends on the protocol’s revenue.
The quarter before last was a strong one — that’s why we got 13%.
The previous quarter wasn’t as good, so we only got 6%.
By the way, that’s a separate topic for discussion.

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I understand perfectly: because earnings are low, the payout gets cut, even though we hold the second-largest treasury reserve in the entire ecosystem and the largest relative to TVL. But for “other things,” there’s money. Curious.

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First of all, I agree to compensate users for their losses, as this incident does not fall into the category of a reasonable liquidation event.

Another issue is the mistake in the liquidation pricing of WBETH.

Of course, I am not only one of the victims of this incident, but also a loyal user of Venus for four years.

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I oppose reimbursing users liquidated while using wBETH as collateral. Deterministic liquidations are essential for a lending protocol’s solvency and credibility. Bailouts create moral hazard and a precedent that weakens risk discipline. The Oct 10–11 incident underscores—rather than refutes—these principles.

  1. Rule enforcement, user responsibility, protocol integrity

Users who posted wBETH as collateral knowingly took on risks inherent to liquid-staking derivatives and leveraged borrowing—depeg risk, oracle/venue dislocation, and stress-market liquidity gaps. Lending protocols must apply liquidation rules deterministically: if health falls below threshold—even briefly—positions must be liquidated to protect overall solvency.
If liquidations are later reversible, users can rationally expect bailouts and take looser risks. Credible “rule of law” requires that thresholds are enforced without discretionary do-overs.

  1. Moral hazard, precedent, and distorted incentives

Compensating losses driven by third-party market behavior (venue pricing flaws, oracle delays, flash moves) shifts risk from risk-takers to the community/treasury. That erodes incentives to choose sound collateral, size leverage prudently, and monitor venue-specific risks. Over time, this socializes losses and increases systemic fragility. If people come to believe “the protocol will make me whole when edge cases happen,” diligence degrades.

  1. What the Oct 10–11 event actually shows

On Oct 10, 21:36–22:16 UTC, wBETH prices on Binance dislocated sharply, triggering liquidations on Venus. Venus Labs has said it will compensate verified users from the Protocol Risk Fund for that window.

Prints show wBETH dipping near $430 at the lows, with an extreme WBETH/ETH ratio ~0.2 before recovering toward its usual ~1.06 thereafter. These were venue-specific dislocations; spot ETH traded materially higher at the time.

Several analyses suggest the root cause was venue pricing/marking mechanics and thin liquidity during stress, not a fundamental collapse in backing. Regardless of attribution, such venue-driven shocks are part of the risk surface users accept when levering LSTs.

These facts don’t imply protocol error. They illustrate that transient, even severe, dislocations are predictable in volatile conditions—and that deterministic liquidations behave exactly as designed.

  1. Constructive path forward (without reimbursements)

If the goal is to reduce recurrence while preserving credible commitment, focus on ex-ante safeguards rather than ex-post bailouts:

Venue/oracle hygiene: prefer robust oracle sources; add circuit-breakers or minimum liquidity checks to ignore pathological venue prints.

Collateral policy for LSTs: more conservative collateral factors, dynamic haircuts during stress, and per-asset risk buffers.

Optional user insurance: explore opt-in protection products funded by premiums, not by the protocol treasury.

Governance clarity: if the community still insists on remediation, make it an explicit, one-time, governance-approved exception with clear criteria—and state plainly that it sets no precedent.

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I fully agree with compensating the users affected by the WBETH depeg. Venus should continue upholding the values that have characterized it over the past five years, where its users have always been the top priority.

You have my vote in favor.

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Regarding the incident of wbeth price depegging leading to liquidation, my point is that those without fault bear no responsibility, and those with minor faults bear minimal responsibility — responsibility should be proportional to the fault committed.

For instance, if a user mortgages wbeth to borrow eth, this is almost the lowest-risk deposit and lending combination in a lending protocol. If users have to suffer huge property losses due to this, they will be disheartened, and the foundation of the entire lending market will be shaken.The very purpose of establishing a risk fund is to protect users who have no fault or only minor faults but suffer huge losses. Therefore, I support using the risk fund to compensate users who incurred significant losses due to liquidation caused by the wbeth price depegging。

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Hi Paul, thank you for your support. Regarding the report from Chaos Labs, we are coordinating with Chainlink as well so that the report can be as thorough as possible before it is posted. I believe Chaos Labs will share the report with the community publicly as soon as they can.

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Hi Fico, I understand your concerns here.

The Prime vault was depleted due to an inflexibility in Prime rewards adjustment. For the previous period, there was an extra $300k allocated to Prime rewards from previous earnings that were left undistributed. For September, the extra money had run out, but the Prime rewards calculation was not adjusted to account for that, which is why the rate of rewards distributed was higher than the protocol’s rate of income. The funds for Prime, XVS rewards, risk fund and etc are all separate buckets. I hope that clears this up for you.

The Venus risk fund is separate, and is something that we do not ever touch unless there is an exceptional situation. I believe most people would agree that the events of this past weekend would fall into that category. Regarding the amount we would spend and the balance of the risk fund, all of that will be disclosed transparently in each VIP we propose. I believe we will adequately provide the level of transparency required in a DAO such as this.

Additionally, as per the community’s request, we are also working on building a dashboard to show how the protocol’s income is allocated. This will further improve transparency and allow the community to understand how the protocol’s income is distributed and spent. I believe this would be of interest to you, so I invite you to stay tuned for related announcements.

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Thank you for this thoughtful and well-articulated response. You’ve raised important points around protocol integrity, moral hazard, and the long-term credibility of deterministic liquidations.

We fully agree that maintaining predictable, rule-based liquidations is critical to preserving trust in the protocol. The intent behind proposing reimbursement is not to override that foundation, but to recognize the unique circumstances of this incident — where an external oracle input briefly deviated in an extreme and unprecedented way, resulting in losses that may not reflect user mismanagement or market fundamentals.

That said, your suggestions for post-reimbursement improvements are especially valuable. Enhancing oracle safeguards, reviewing collateral parameters for liquid staking tokens, introducing circuit-breakers or minimum liquidity checks, and exploring opt-in insurance mechanisms are all excellent directions. Venus Labs will incorporate these ideas into our broader risk management review.

We also agree that if the community chooses to move forward with compensation, it should be framed clearly as a one-time, governance-approved exception — not a precedent for future bailouts.

Appreciate your thoughtful contribution to this discussion. Constructive perspectives like yours help ensure Venus remains both resilient and fair to all participants.

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