We propose the implementation of Flash Loans in the Core pool on BNB Chain, where the majority of Venus liquidity is concentrated. Flash loans are a powerful DeFi primitive that allow users to borrow assets instantly and without collateral, provided the loan is repaid within the same transaction. This unlocks new opportunities for arbitrage, collateral swaps, and efficient liquidations.
Problems to be Solved
- Limited DeFi composability: Without flash loans, users and developers cannot execute advanced strategies that require atomic borrowing and repayment.
- Inefficient liquidations: Liquidators must hold capital up front, reducing efficiency and increasing costs.
- Missed arbitrage opportunities: Traders cannot leverage Venus liquidity for arbitrage unless they already hold assets.
Solution Proposed
- Implement flash loans in the Core pool: Users will be able to borrow any supported asset for the duration of a single transaction, with no collateral required.
- Flash loan fee: A small fee will be charged on each flash loan, benefiting Venus suppliers and protocol reserves.
- Governance controls: Venus Governance will be able to authorize accounts, set fees, and pause flash loans if needed for protocol safety.
Benefits for the Protocol and Community
- Increased capital efficiency: Liquidators and arbitrageurs can operate without pre-funding, leading to more efficient markets and reduced liquidation risk.
- Expanded DeFi integrations: Developers can build new tools and strategies, such as collateral swaps, leveraged positions, and cross-market arbitrage.
- Leverage Positions (upcoming): Users will be able to open leveraged positions using flash loans, amplifying their exposure and potential returns in a single transaction.
- Additional protocol revenue: Flash loan fees will contribute to protocol income and reserves.
- Improved user experience: Users benefit from more competitive liquidations and new DeFi use cases.
Details
Flash Loan Whitelisting Process
To ensure protocol safety and responsible usage, Venus Protocol will implement a whitelisting mechanism for flash loan access.
Who Will Be Whitelisted?
- Initially, only selected accounts will be authorized to execute flash loans. These may include trusted liquidators, protocol-integrated bots, and key DeFi partners.
Criteria for Whitelisting:
- Accounts must demonstrate a legitimate use case for flash loans, such as liquidation, arbitrage, or protocol integrations.
- Security and reliability of the account’s smart contract will be reviewed.
- Community and governance input may be considered for future additions.
Whitelisted Accounts in the First Release:
- The first release will whitelist a small group of established liquidators and protocol partners to ensure smooth and secure operation.
- Additional accounts may be added over time through Venus Governance proposals and community feedback.
How Flash Loans Will Work on Venus Protocol
- Authorization: Only whitelisted accounts can execute flash loans, ensuring security and compliance.
- Fee Structure: Each flash loan will incur a protocol fee, set and adjustable by governance.
- Repayment: The borrowed amount and fee must be fully repaid within the same transaction; if not, the unpaid portion will be converted into a debt position for the user.
- Supported Assets: All assets in the Core pool will be eligible for flash loans, subject to governance approval.
User Interaction
- A user (or developer’s smart contract) calls the Venus flash loan function, specifying the asset and amount to borrow.
- The protocol instantly transfers the requested asset to the user’s contract.
- The user’s contract must use the borrowed funds and repay the loan (plus fee) within the same transaction.
Repayment Scenarios:
- Full Repayment (No Debt Position):
- If the user repays the full borrowed amount plus the required fee before the transaction ends, the flash loan is considered successful.
- No debt position is opened, and the transaction completes atomically.
- The user can use flash loans for arbitrage, collateral swaps, or liquidations without leaving any outstanding debt.
- Partial Repayment (Debt Position Opened):
- If the user repays only part of the borrowed amount or fee, the protocol automatically opens a borrow position for the remaining unpaid amount.
- The user now has an outstanding debt in the Venus market, similar to a regular borrow.
- This debt accrues interest and must be repaid later using standard repayment methods.
- The protocol ensures that the user’s account remains healthy and within risk parameters; otherwise, liquidation may occur.
- The entire flash loan process happens within one transaction.
- Full repayment means no ongoing obligation; partial repayment converts the unpaid portion into a standard borrow position.
- Users can monitor and manage any resulting debt through the Venus dashboard or smart contract calls.
Governance Controls
Venus Protocol Governance will be able to:
- Authorize or deauthorize accounts for flash loan access.
- Set and update flash loan fees.
- Pause or resume flash loan functionality system-wide.
- Monitor usage and adjust parameters for protocol safety.
Example Use Cases
- Liquidation: A liquidator borrows USDT via flash loan, repays a user’s debt, seizes collateral, and repays the loan—all in one transaction.
- Leveraged Position (upcoming): Users will be able to use flash loans to open leveraged positions, borrowing assets and supplying them as collateral in a single transaction to amplify their exposure.
- Arbitrage: A trader borrows BNB, swaps it for another asset on a DEX, and repays the loan, capturing price differences.
- Collateral Swap: A user atomically repays their debt and re-borrows against a different asset, optimizing their position.
Risks and Safeguards
- Protocol safety: Only authorized accounts can access flash loans; governance can pause the feature if needed.
- Fee mechanism: Ensures flash loans are not abused and generates revenue for the protocol.
- Transaction atomicity: If the loan is not repaid, Venus Protocol opens a debt/borrow position for the user for the unpaid portion .