Venus’ TVL is up 87% year-to-date, ranking it as the sixth-largest lending protocol by TVL.
At the end of Q2, XVS held a market cap of $98 million and a fully diluted valuation of $180 million.
User activity on Venus reached yearly highs this quarter, with a notable 16% increase in deposits.
Venus launched on Ethereum on April 1, with Lido, Frax, and Curve as launch partners. The protocols committed over $1.3 million in rewards in their native tokens. There are projections for further cross-chain expansions to Arbitrum and zkEVMs in Q3.
Primer
Venus (XVS) is a borrow/lend protocol built on BNB Chain, recently launching on Ethereum in Q2 2024. At its core, Venus enables users to deposit various cryptoassets, which can then be borrowed. Unlike traditional financial systems, Venus employs a unique algorithmic approach, where central entities often set interest rates. The interest rates for borrowing and lending on Venus are dynamically adjusted based on a jump rate model and a whitepaper rate model. These models leverage the utilization ratio, which is the proportion of deposited assets that have been borrowed.
The utilization ratio is a critical component of the Venus Protocol. It adjusts dynamically: as demand to borrow a specific asset rises, so does the utilization ratio and, consequently, the interest rates. Conversely, lower borrowing demand decreases the ratio and interest rates, maintaining balance in the system by incentivizing lenders during high-demand periods and borrowers when demand wanes.
The Venus Protocol is governed by its DAO community and is enabled by the XVS governance token. Tokenholders can propose and vote on governance decisions. Furthermore, they can stake their tokens in a specialized vault to receive financial incentives, following the Venus tokenomics model. This model allocates a portion of the protocol’s revenue to stakers through a buyback and redistribution mechanism, rewarding active participation in governance. For a full primer on Venus, refer to our Initiation of Coverage report.
Venus' total value locked (TVL) saw a 19% reduction to $2.2 billion in Q2. It is still up 83% year-to-date, ranking it as the sixth largest borrow/lend protocol by TVL. Its TVL peaked at $3.0 billion in early June, marking the highest point since Q1 2022. BNB is now the largest collateral asset on the platform, showing a 20% increase from the previous quarter to $887 million. In contrast, BTC, which was the largest collateral in Q1 at $1.1 billion, experienced a 40% decrease to $664 million in Q2 due to falling asset prices.
USDT and USDC similarly fell throughout the quarter, decreasing 2.76% and 17.22%, respectively. However, as prices look to rebound into H2 2024, DeFi protocols often underscore reflexivity in the market, as evidenced by Venus’ massive Q1. As prices rise, users often seek leverage in money markets, resulting in larger collateral amounts and more revenue for DeFi protocols. Venus’ TVL decrease was largely a function of lower asset prices, and nominal collateral amounts remained steady. Its launch on Ethereum was a massive milestone for the application, a move which often takes time for capital to start flowing. TVL will likely remain resilient as its market share on Ethereum can only increase.
In Q2, Venus ended the quarter with $668 million in active borrows, marking a 40% decrease from the previous quarter. While there were spikes in debt issuance throughout the quarter, the trend for new borrows gradually decreased. USDT is the most issued asset and grew 3% to $256 million. It was one of the few assets that increased QoQ, alongside ETH, which rose 47% to $117 million. The primary reason for ETH’s growth was Venus’ launch on Ethereum this April. Similarly, the amount of Bitcoin issued increased by 119% to $71 million. Borrows in USDC (USDC and USDT) rose by $80 million, indicating a pursuit for additional liquidity.
While overall cryptoasset prices slowly slid down in Q2, resulting in lower numbers for TVL denominated in USD, Venus’ deposit counts continued to grow.
User activity on Venus reached quarterly highs this quarter, with a notable 16% increase in deposits. April saw the highest monthly deposits of the past year, totaling 20,400. Its peak was spurred by Venus consistently offering higher APYs than other lending protocols on the BNB Chain. Withdrawals decreased by 27% QoQ, while borrow counts also dropped by 15%. That said, the rise in deposits coupled with fewer withdrawals may encourage more borrowing in the next quarter and throughout 2024. Repayment counts decreased slightly by 0.8%, indicating that fewer users are settling their loans. The shift in sentiment is likely due to increasing optimism for higher prices anticipated with the upcoming ETH ETF launch in Q3.
XVS experienced its largest drawdown of the year, declining from a March peak of $16 to $7 by the end of the quarter. Despite this, Venus remains the eighth-largest lending protocol by market cap, with a market cap of $98 million and a fully diluted valuation of $180 million. It is positioned between Maple, valued at $110 million, and Euler, valued at $87 million. A key factor in Venus' value is its revenue-generating capability, which continues to grow.
Venus Protocol generated over $13 million in revenue this quarter. Over $3 million of revenue was derived from liquidations, including $1.6 million on the last day of the quarter. Interest revenue contributed nearly $10 million of revenue. Daily interest revenue averaged $120,000, reaching another annual peak and growing 20% QoQ. Revenue distribution includes 40% to the risk fund, 40% to the treasury, and 10% each to XVS vault and prime stakers.
Increased revenue provides a higher APY to stakers and was on display this quarter with a median interest rate APY of 9.6%, drawing more users and stakers to Venus Protocol. The growth in users and stakers was reflected in a modest 0.49% increase in total XVS staked QoQ. The stakers are attracted to the buyback distribution, where 10% of protocol revenues are used to repurchase XVS, then distributed to XVS stakers. Additionally, stakers have indirect earnings through their treasury management, benefiting from revenues allocated there.
XVS staking now sits at 7.4 million. This number has stayed relatively flat throughout the year despite oscillations in interest APYs.
XVS stakers and voters also oversee the risk fund, which acts as an insurance pool against potential bad debts in the protocol. Given its purpose, the risk fund's value isn't reflected in the APR. While stakers receive emission incentives, these are considered a cost to the protocol and are not counted as revenue.
Ethereum Launch
Venus' quarter was marked by its launch on the Ethereum mainnet in April. By the end of Q2, Venus' market size on Ethereum reached $211 million — combining $147 million in supply and $64 million in borrows. The quarter generated $224,000 in accrued revenue, predominantly from reserve revenues. Over the quarter, 270 unique users engaged with Venus on Ethereum. The LST pool was particularly active, achieving a market size of $162 million by quarter-end, with pool revenues totaling $172,000.
Qualitative Analysis
Venus Prime
Since launching in Q4 2023, Venus Prime has steadily gained traction as an incentive program to boost user engagement and protocol growth. By promoting the staking of XVS, the program fosters a sustainable and self-sustaining reward system. Venus Prime addresses the common issue of transient and unstable liquidity in DeFi protocols by incentivizing long-term staking and active participation in liquidity markets. It also introduces a sustainable reward mechanism for power users and tokenholders, as users need 1,000+ XVS ($10,000 as of writing) to qualify.
Venus Prime features a calculator that launched in January 2024. It ensures that rewards are distributed proportionally to the amount of XVS staked and the user’s active participation in the protocol through supplying and borrowing actions. Venus passed a proposal to allocate legacy XVS rewards to the XVS Vault, executed in January. VIP 231 (Venus Improvement Proposal) also initiated a quarterly XVS buyback and an allocation of its funds to enhance vault liquidity further. As traction increased, Venus changed rewards to Prime as the product continued to drive significant revenue and overall activity. The proposal aims to scale rewards with usage, particularly in bootstrapping. As of writing, Venus Prime has 500 holders.
Development and Growth
As the largest lending protocol on BNB, Venus’ next step is to grow its market share on other networks. With this in mind, Venus’ major developments throughout the quarter enabled and executed cross-chain expansions, specifically to Ethereum, Arbitrum, zkEVM, and opBNB.
On April 1, Venus launched on Ethereum with Lido, Frax, and Curve as launch partners and committed to over $1.3 million in rewards. Users can deposit and borrow against their wstETH, CRV, or FRAX. Throughout the quarter, Venus launched new assets for its LST market including weETH, sfrxETH, and a Pendle market. It also added TUSD and DAI support to bolster its debt issuance flexibility. Venus also furthered its development on Ethereum by increasing the XVS mint cap, introducing FRAX and sFRAX markets in its core pool, and updating risk parameters to facilitate new markets.
In June, Venus started its campaign to launch on Arbitrum by bootstrapping liquidity and configuring a bridge to Arbitrum One. Additionally, an XVS vault and rewards were instituted for potential stakers. A governance proposal was passed at the end of the quarter to help navigate the multichain expansion. With a successful Ethereum launch, Venus' launch on Arbitrum and other L2s is likely next in 2024.
Closing Summary
Venus' performance in Q2 has been a blend of challenges and expansions that underscore its adaptiveness. Despite a 19% reduction in TVL to $2.2 billion, Venus maintained a substantial year-to-date growth of 83%, ranking it as the sixth largest borrow/lend protocol by TVL. This drop in TVL was contrasted by strategic product launches that aimed to bolster its market presence and user engagement. Notably, Venus expanded its operations to Ethereum Mainnet, which attracted $211 million in market size by the end of Q2.
The quarter also saw a shift in collateral assets, with BNB overtaking BTC as the largest collateral asset on the platform due to the latter's depreciation. However, the introduction of new products like mETH and promotional activities such as raffles significantly boosted user engagement. Furthermore, Venus' revenue-generating mechanisms continued to perform, evidenced by a strong revenue influx from its new Ethereum-based operations and consistent income from established markets. Its future expansions to Arbitrum and other L2s position it well to capitalize on emerging opportunities as the ETH ETF goes live.
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Toe is a technical research analyst at Messari specializing in DeFi coverage. Before joining Messari, he worked as a data scientist at both Celsius Network and IBM. Toe graduated from the University of Michigan School of Information.
Toe is a technical research analyst at Messari specializing in DeFi coverage. Before joining Messari, he worked as a data scientist at both Celsius Network and IBM. Toe graduated from the University of Michigan School of Information.
