Emergency Measures Triggered: Collateral Rules Suspended in 7 Key Markets

In response to unusual activity in the THE lending pool, Venus Protocol has taken swift action by setting collateral factors to zero across seven major assets: BCH, LTC, UNI, AAVE, FIL, TWT, and lisUSD. This precautionary move effectively disables their use as collateral, mitigating potential risk exposure. Notably, all other markets remain fully operational with no disruptions to borrowing or withdrawals.

Attack Method Revealed: A Calculated Exploit of Oracle Weakness

Initial findings suggest the attacker began quietly accumulating THE tokens through standard deposits as early as June 2025, eventually amassing approximately 84% of the total supply—around 12.2 million THE. This concentration enabled a sophisticated price manipulation scheme.

The actual exploit unfolded when the attacker deposited a massive volume of THE into the protocol, instantly inflating its on-chain valuation. Leveraging the token’s minimal external liquidity and the inherent lag in TWAP-based price oracles, they executed a recursive loop:

  • Deposit large amounts of THE as collateral
  • Borrow liquid assets such as stablecoins or major cryptocurrencies
  • Use borrowed funds to buy additional THE on decentralized exchanges
  • Repeat the process, allowing the delayed oracle to gradually reflect higher prices

This self-reinforcing cycle allowed the attacker to exponentially increase borrowing power within the system, posing a critical threat to protocol solvency.

Official Response: Commitment to Transparency and Post-Mortem Analysis

Venus Protocol reassured users that unaffected markets are functioning normally and funds remain secure. The team is actively investigating the incident and pledged to release a comprehensive technical report upon conclusion. This transparency aims to restore trust and strengthen future defenses.

The event highlights growing concerns around oracle reliability, concentration risks, and the resilience of collateral models in DeFi protocols. Experts recommend enhanced monitoring for abnormal holdings and more robust pricing mechanisms resistant to manipulation.