Venus’ XVS token drops 9% after exploit saddles protocol with bad debt.

The exploit, which took place on March 16, did not immediately impact Venus’ XVS token price, but market reaction followed after analysts flagged large holders transferring significant amounts of tokens to exchanges.

Venus’ governance token, XVS, tied to the BNB Chain-based money market protocol with more than $1.4 billion in total value locked, has fallen over 9% in the past 24 hours. The decline comes after the exploit left the protocol with approximately $2.15 million in bad debt.

The drop also coincides with a broader sell-off in risk assets, with the CoinDesk 20 (CD20) index down 4.6% over the same period.

According to Venus, the attacker manipulated the price of the THE token by acquiring and using it as collateral to borrow other assets, then reinvesting into THE in a relatively illiquid market. This activity pushed THE’s price from around $0.26 to nearly $0.56. The protocol clarified that the incident did not involve a flash-loan attack, its oracle systems remained functional, and Venus Flux was unaffected.

When the attacker eventually offloaded THE, the token’s price dropped more than 17% within a day, triggering a cascade of liquidations. Estimates suggest the attacker extracted between $3.7 million and $5.8 million prior to liquidations, including assets such as tokenized bitcoin, BNB, and stablecoins.

Venus said the impact was largely contained to the THE token and, to a lesser extent, CAKE. No user funds were lost outside the affected pools.

In response, the protocol paused borrowing and withdrawals for THE, reduced its collateral value to zero, and tightened risk parameters across other potentially vulnerable markets. These include markets for BCH, LTC, and AAVE, among others.

The attacker’s address had reportedly been flagged by the community prior to the incident. However, Venus stated it did not intervene at the time, as no rules had been violated.

“Venus is a decentralized and permissionless protocol. We cannot and should not freeze or blacklist addresses based solely on suspicion,” the team said in a social media statement, acknowledging the inherent trade-offs in decentralized finance.

A governance proposal is expected to determine how the protocol will cover the losses, likely through its risk fund.