If you're wondering why the XVS coin dropped, last week a serious issue occurred in the Venus protocol on BNB Chain. After an exploit that left a bad debt of $2.15 million, the XVS token declined by over 9% within 24 hours. The incident happened simultaneously with the sale of risky assets in the overall market, and the CoinDesk 20 index also lost 4.6%.

To understand what the attacker did, we need to go back a bit. They accumulated a large position in THE tokens over approximately nine months on the Thena (THE) protocol. According to PeckShield's analysis, this money was financed with 7,400 ETH withdrawn from the Tornado Cash mixing service. Then, taking advantage of a code flaw in Venus, they exceeded normal limits and deposited more than 36 million THE directly into the vTHE contract. This move increased THE's price by about 3.8 times, from $0.26 to $0.56.

The answer to why the XVS coin dropped lies here, in fact. The attackers used THE as collateral to borrow other assets and bought more THE in a market with low liquidity. As the price rose, they sold THE, causing the price to drop more than 17% in less than a day. Liquidations began, and according to Venus, the losses ranged between $3.7 million and $5.8 million.

Venus management responded quickly to the incident. They halted THE borrowing and withdrawals, and reduced the collateral value to zero. Besides the question of why the XVS coin dropped, most of the damage was limited to the THE token, with less impact on CAKE. User funds outside the protocol were not harmed. The protocol also tightened rules in risky markets like BCH, LTC, and AAVE.

Venus claimed that "no vulnerability occurred," but there was clearly a flaw in the code. They said they cannot freeze addresses as a decentralized protocol. Currently, a decision is awaited on how to contain the damage. This incident highlights the tension between DeFi's decentralized nature and centralized control.