What is Venus?

Venus Protocol is an automated protocol designed to bring a complete decentralized lending and credit system onto Binance Smart Chain. Venus declares itself a money market and stable coin platform built on top of the Binance Smart Chain. Venus can be compared with Aave or Maker of Binance Smart chain.

Venus explained
Lending on Venus

 Venus enables users to earn interest on their assets by supplying cryptocurrencies as collateral to the network. These tokens are then borrowed by the process of collateralization. This ensures both safety and incentive to users and the network.

Venus aims to solve all the problems and remove the involvement of traditional finance in the DEFI world. They have developed features that are considered unconventional for most DEFI platforms. This excites a larger demographic towards Venus.

Stablecoin backed by Cryptocurrencies

Venus enables the world's first decentralized stable coin, VAI. This coin is built on Binance Smart Chain, backed by a basket of stable coins and crypto assets rather than actual US dollars. This ensures that it is completely decentralized and no monopoly exists in their protocol.

Decentralized and Un-Biased

A lot of stable coins are actually backed by US dollars which actually brings FIAT into the play. This process is stable as FIAT currencies are a lot more stable as compared to cryptocurrencies, but somehow eliminates the core concept of cryptocurrencies which is being decentralized.

The decision-making on most DEFI platforms is considered biased while there are stakeholders and private equity firms in play. These adversities are technically making them heavily centralized.

Faster and Cheaper!

Venus utilizes the Binance Smart chain for fast, low-cost transactions. This overcomes the conventional problem faced by the Ethereum blockchain, which is the heavy fees and slower transactions.

Incentivized on Demand and Supply

Users can supply cryptocurrencies and stable coins and earn a variable APY for providing liquidity to the protocol. The liquidity provided is secured by over-collateralized assets locked by borrowers. The interest rate, however, is not fixed but based on demand and supply of the particular assets, this can bring some ease for borrowers with lower collateral rates.

Minting stable coins

The block earns the interest for lending assets and can be used as collateral to borrow assets or to mint stable coins. These stable coins can be used on a platform called Swipe. This platform provides virtual and physical debit cards backed by cryptocurrencies. You can spend on more than 60 million locations worldwide.

vTokens?

The protocol-created pegged assets when collateral is supplied are called vTokens. Users that supply their cryptocurrency Venus receive a vToken. If you provide Venus BTC you will get vBTC token in return. vTokens are created and implemented by Governance processes and voted by Venus Token holders.

vTokens on Venus
vTokens are the only way of redeeming your supplied cryptocurrencies.

These vTokens can be stored in cold storage and can be transferred to other users.

Governance Token (Venus Token (XVS))

The Venus Protocol is governed by the Venus Token (XVS), which is designed to be a “fair launch” cryptocurrency. There are no founder, team, or developer allocations, and the XVS can only be earned through the Binance Launch Pool project or through providing liquidity to the protocol.

Code and Security

The source code for the platform is public including the smart contract and can be found on GitHub. Venus has been audited by CertiK with an overall score of 93%. You can read the full report here.

Conclusion

Venus is overall a great platform with still a lot to come. The zero FIAT involvement, protocol governance, better rates, and algorithms allow venus to embrace the definition of decentralized in DEFI.

What is a Collateral?

Collateral in DEFI is similar to traditional finance. While acquiring a loan a borrower goes to a lender for a certain amount of funds. The lender agrees to provide a loan once they both agree on the interest rate, this rate is based on the amount and the time of repayment.

The lender asks for the security of his loan by taking something of value from the borrower. The valuable asset that is being kept for security against the loan is known as collateral. They both agree that in case of failure of payment the ownership of the collateral is transferable for recovery.

The value of the collateral is more than the amount of the loan most of the time. The collateral allows the lender to guarantee the safety of funds if the borrower is insolvent. Sometimes in the case of insolvency, the collateral recovers both the original value and interest rate for a loan.

Lending in DeFI?

Lending in Defi is similar to traditional finance but the type of collateral is different. In traditional finance, collateral can be provided with assets like property, cars, gold, stocks, etc. In DEFI lending if you borrow a cryptocurrency you have to provide another cryptocurrency against it as collateral, this is known as collateralize lending.

For example, John is the lender and Mike is the borrower. John agrees to provide mike with $1000 worth of Ethereum against collateral that is 150% more than the lending amount. They both agree on a repayment time of 30 days with an interest rate of 10% above the amount.

This means that Mike has to pay $1100 to John within 30 days. If Mike defaults on the payment his collateral will liquidate to cover losses. This financial operation is automatically run through a smart contract. Different lending platforms have different smart contracts. The smart contract is written to lock the collateral release them if the borrower is able to repay the loan.

Security and Risks

The biggest issue is over-collateralization. This means that the borrower will often default loan as the locked collateral is more than the actual loan amount. This means borrowers can lose their private keys or the smart contracts that hold their collateral can be hacked.

Over-collateralization is associated with impermanent loss to ignore losses. To ensure no future losses most platforms have really high collateral ratios for nonstable coins. For example, if your collateral is $150 Ethereum for $100 DAI and the value of Ethereum drops below $150 it will result in a penalty. To ignore these most platforms have an average collateral ratio of over 300%.

This collateral ratio is really huge and discouraging for borrowers. This can be ignored if the borrower collateralizes stable coins, they are less likely to see a price drop. The interest rates associated with stable coins are also less compared to major cryptocurrencies.

Synthetix is a DEX and an asset issuance protocol. It is ideal for trading cryptocurrencies, commodities, and sFIATs (Synth FIATs). It can be considered an emerging alternative and competitor of the 0x relay.

It works on top of the ethereum blockchain and allows infinite liquidity limits with over 20 different synths available to trade with. The market cap of SNX coin is $181 million, with an average price of $0.8 at the time of writing.

How Does It Work?

There are two kinds of tokens in the Synthetix Network. SNX is the Synthetix network token and synthetic assets, known as Synths. For example, sBTC is a synth. SNX works as collateral for synths to provide liquidity to the market.

What Is A Synth?

Synth is a purpose-specific smart contract, it is used as a wrapper for DEX trades, just like the 0x relay. However, the SNX is a functional token but is standardized for liquidity and staking purposes.

This algorithm is so designed to wrap ETH, USDT, BTC, etc into its own smart contract which excludes counterparties. The main purpose is to interconnect the ethereum blockchain with other stable and major coins like BTC, LTC, etc.

sUSD is for synthUSD and sETH for synthEthereum

The market cap of sETH, sUSDT, etc has different market caps and values for what original ETH and USDT have. The commodities are wrapped around synth contracts which make BTC into sBTC.

Synthetic Trading Products

Synthetix platform has 2 major products:

Synthetix Exchange (DEX)

To work with the exchange you need to unlock funds using MetaMask as a browser wallet. Synthetix only works with MetaMask as a browser wallet. Other options are Ledger and Trezor, both are hardware wallets.

To connect MetaMask, check out our MetaMask article

Once you have successfully connected your desired wallet, trading view charts will be active. TradingView API is the most trusted and accurate historical and real-time data-providing API in the market.

Trading is easy on synthetix, depending on your experience you can switch between basic mode and pro mode. TradingView works on pro mode.

TradingView charts and graphs displaying real-time data

There are no limits and waiting periods when trading with Synthetix. The P2P trading algorithm executes trade faster and easier, without order books.

Mintr - Staking

Mintr is the trading dashboard for users staking SNX tokens.  Users can mint synths against SNX, staking the system and providing liquidity to the DEX. All Synth trades on DEX generate fees that are distributed to SNX holders, rewarding them for staking the system.

How Does Mintr Work?

Collateralization is like securing a loan that users provide in form of their SNX tokens. They receive SNX staking rewards, which are created through the inflationary monetary policy defined by synthetix on their official white paper.

Secondly, there are Synth exchange rewards, which are generated by Synth trades on the DEX. To unlock the escrowed or staked SNX you can burn synths back into SNX tokens, allowing you to transfer your non-escrowed SNX.

Deposits of synths are of minimum $50 USD

The collateralization rate is standard for every stakeholder. It is considered optimal for small and large stakeholders to avoid rate fluctuations.  “ A high collateralization ratio helps synths get approved for trades because it reduces SNX lenders risk”.

According to the official lite paper, this ratio can be maintained easily by minting SNX if the ratio is high, and burning SNX if the ratio gets lower than 750.

Synthetix Team & Support

The team consists of experienced engineers, blockchain and finance enthusiasts. The support, however, is available via an active and spreading community on discord.

Experience Crypto
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