State of Venus Q1 2024

Key Insights

• Venus’ TVL grew 128% QoQ to $2.7 billion, marking its highest percentage growth since Q4 2021.
• Venus' TVL witnessed remarkable growth, increasing 128% QoQ to $2.7 billion, marking the highest percentage growth since Q4 2021.
• With a market cap of $250 million and a fully diluted valuation of $450 million, Venus ranked as the fifth-largest lending protocol by market cap at the end of Q1.
• Venus Prime holders grew 113% as Venus’ treasury reconfigured rewards to allocate $750,000 to stakers, denominated in BTC, ETH, USDC, and USDT.
• 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. Cros-chain expansion to Arbitrum and zkEVMs is projected for Q2.

Primer

Venus (XVS) is a decentralized finance platform built on the BNB chain, offering a robust money market protocol for the crypto community. At its core, Venus enables users to deposit various cryptoassets, which can then be borrowed. Venus employs a unique algorithmic approach unlike traditional financial systems, 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 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. Please see our Initiation of Coverage report for a comprehensive understanding of Venus.

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Key Metrics

Financial Overview

Network Overview

Venus' total value locked (TVL) witnessed remarkable growth, more than doubling QoQ. It increased by 128% QoQ to $2.7 billion, marking the highest percentage growth since Q4 2021. Specifically, Bitcoin's TVL on Venus saw a substantial surge of 210%, growing from $355 million to over $1.1 billion in the past quarter. This increase reflects a strong demand for Bitcoin leverage, fueled by robust ETF flows and the anticipation of the halving in April.

Other cryptoassets mirrored this growth. BNB, the largest asset on Venus in Q4 2023, increased from $404 million to $739 million in Q1 2024. USDT and ETH also grew 85% and 171% QoQ, respectively. Similarly to Bitcoin, as market dynamics continue their rise, the appetite for leverage typically increases.

This quarter, depositors on Venus earned $25.8 million, the most in a single quarter in over two years. Daily depositor APY varied widely from 1% to 25%, yet the median APY settled at 5.06%, marking a 2.2% QoQ increase. Depositor APY on Venus is significantly influenced by lending utilization, determined by the debt ratio issued to the total value locked for each coin. An uptick in active borrows naturally leads to higher lending and deposit rates.

In the first quarter of 2024, Venus saw $1.1 billion in active borrows, marking a 53% increase from the previous quarter. While there were spikes in debt issuance throughout the quarter, the trend for new borrows gradually increased. BNB was the most issued asset, with $629 million, showcasing the highest QoQ growth at 110%. In contrast, Bitcoin's issuance decreased from $97 million to $32 million QoQ despite having the largest TVL. Borrows in stablecoins (USDC and USDT) rose by $80 million, indicating a pursuit for additional liquidity.

While overall cryptoasset prices saw significant growth in Q1, resulting in higher TVL numbers (in USD), the rise in deposits was also quite apparent.

In Q1, particularly in March, user activity on Venus surged to monthly highs in borrowing, depositing, and withdrawing. This was partly fueled by Venus consistently offering higher APYs than other top protocols on BNB Chain. The anticipation of its launch on Ethereum, combined with over $1 million in rewards from Curve, Lido, and Frax, contributed to a 47% increase in borrows and a 101% increase in deposits QoQ. As daily active users grew 2x QoQ and user activity reached yearly highs, it’s no surprise the price of XVS also increased this quarter.

Since January, XVS has increased by 33% and reached a peak of $17.50 in March. With a market cap of $250 million and a fully diluted valuation of $450 million, Venus ranks as the fifth-largest lending protocol by market cap. It sits just below Goldfinch, valued at $279 million, and above Gearbox and Maple, valued at $166 million and $164 million, respectively. An important driver of Venus’ price appreciation is its revenue-generating capability.

Venus Protocol achieved record performance this quarter, generating over $10 million in interest revenue and $3 million from liquidations. Over half of Q1’s liquidation revenue originated from a single $1.6 million liquidation in March. Daily interest revenue averaged $104,000, reaching another annual peak. 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 13.5%, drawing more users and stakers to Venus Protocol. The growth in users and stakers was reflected in a 5.9% 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 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 accounted for as revenue.

Venus' treasury experienced net outflows for the second consecutive quarter, reaching a yearly high of $27 million. These outflows were primarily due to increased shortfall repayments. Despite the outflows, the treasury's net decrease was only $145,000. It ended the quarter with nearly $7 million in assets, predominantly in BTC.

Venus achieved the second-highest revenue among all lending protocols in Q1, nearly tripling its earnings from previous quarters. While Aave continued to lead the lending sector, there was increased competition, including from Venus. Although Venus has considerable ground to cover, its roadmap is sharply focused on expansion.

Qualitative Analysis

Venus Prime

Venus Prime launched in Q4 2023 and has steadily gaining 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 USD 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 this writing, Venus Prime has 443 holders, and recent proposals recommend updating the reward distribution to $750,000 total, comprising 5% BTC, 25% ETH, 30% USDC, and 40% USDT.Regarding technical upgrades, Venus completed an audit in March led by Pessimistic. Additionally, Venus successfully transitioned to IPFS, a more secure, reliable, and efficient way to store and distribute content on the internet.

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. In February, Venus successfully launched on opBNB, an L2 on BNB Chain powered by the OP stack, and currently supports BTC, ETH, BNB, and USDT.

In preparation for the Ethereum expansion, Venus DAO passed several proposals. First, it bootstrapped liquidity to service user activity upon its launch. Additionally, it executed optimizing treasury management and risk parameters for upcoming lending vaults. The vaults need enough liquidity to begin issuing loans on Day 1 with the proper parameters to mitigate user and protocol risk.

On April 1, Venus launched the Ethereum launch 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. Looking forward to Q2, Venus can potentially close the gap on Aave through incentivization and LSTs, which is why its launch partners were selected. In the short run, it’s a proven user acquisition strategy to allow users to loop leverage with additional rewards, and Q2 will be an instrumental quarter for Venus to determine the stickiness of these new users.

Venus concluded Q1 with the second-highest outstanding borrows in the lending sector despite primarily operating outside Ethereum's ecosystem. Much of Ethereum’s advantage can be attributed to its significant onchain liquidity, which Venus lacked until recently. With Venus's recent launch on Ethereum, there is a level playing field for competitors like Aave, Spark, and Morpho — all of which have seen accelerated TVL growth.

Closing Summary

Venus capitalized well on the favorable market conditions, yearly highs with its $1.8 billion in TVL and $800 million in total debt issued. With a notable increase in deposit activity, Venus also saw a substantial rise in active borrows, reflecting a broader interest in leveraging opportunities within the ecosystem. The protocol’s revenue performed well enough to support higher yields for depositors and reinforce the protocol's financial stability. As Venus continues to innovate and expand — most significantly through its recent deployment on the Ethereum network — the stage is set for it to leverage its enhanced platform capabilities and potentially broaden its market influence in 2024.

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This report was commissioned by Venus. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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