Venus Protocol Explores Isolated Markets, Allowing Users To Lend Or Borrow Virtually Any Token On The BNB Chain

Venus Protocol XVS/USD is one of the largest algorithmic money markets and synthetic stablecoin protocols on the BNB Chain, intended to enable a fully decentralized finance-based lending and credit system for its users. It does this by enabling users to utilize their cryptocurrencies by supplying collateral to the network which can then be borrowed by pledging overcollateralized cryptocurrencies. 

In a major update to its user interface the platform integrated even more decentralized finance (DeFi) functions and interface upgrades to make Venus more interoperable, user-friendly, decentralized and community-oriented. 

Now, the Venus team is eyeing isolated lending pools in its next big update. Isolated Markets would enable users to lend and borrow virtually any token on the BNB Chain. Venus accounts for about an 84% market share of lending total value locked (TVL) — or the total value of assets available for lending on the BNB chain, making it the leading lending protocol on the chain. With the increased selection of lending pools, the platform could see even more growth in Venus’s TVL and number of users. 

Existing Lending Models Limit Users’ Asset Choices

To understand isolated markets, it helps to first understand how lending works on Venus Protocol right now. The platform uses a common collateral pool model where all assets are deposited into one liquidity pool, which the protocol can then use to make loans to others. This model is great for capital efficiency because it allows the protocol to easily pull funds for loans at scale and on demand. 

But it also means all assets in the pool are vulnerable to bankruptcies in a single asset, as happened in May when errant pricing behavior for Terra LUNA/USD in a flash loan attack led to $11 million in losses for Venus Protocol. 

While the lending platform was quick to suspend the LUNA market and implement protective measures, the costly event is a prime example of why common pools require such conservative risk profiles for chosen assets. As a result, only a small selection of relatively low-risk assets like Bitcoin BTC/USD, Ethereum ETH/USD or Binance coin BNB/USD are supported, leaving few options for users interested in lending or borrowing newer or riskier assets. 

How Isolated Markets Could Create More Choices While Managing Risk

The goal of implementing an isolated markets model in Venus Protocol is to expand the selection of assets available for lending and borrowing without exposing the entire liquidity pool to the risks of those new assets. 

With these independent lending environments, separate from the main protocol pool, individual users can choose which pools to participate in based on their personal risk preferences. More conservative users can stick to the main protocol pool while those who want to engage in lending riskier assets can participate in the isolated lending pools.

To make that new future user-friendly and more intuitive for users of all experience levels, Venus wants to include a risk rating system that analyzes a range of exchange data and lending market metrics for assets to create a custom pool risk rating. That risk rating would make it easier for users to quickly and easily identify which custom pools meet their personal risk preferences. 

The resulting isolated markets model would open the door to creating lending pools out of virtually any token on BNB Chain and enable users to participate in the latest innovative protocol tokens — all while benefiting from a more transparent risk assessment system that makes it easier for users to find lending pools that fit their risk profile. 

Featured photo by Kanchanara on Unsplash

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