Venus BNB

About Venus BNB

Binance Coin (BNB) has emerged as one of the largest cryptocurrencies by market capitalization. As interest in decentralized finance (DeFi) grows, new platforms are developing innovative ways for users to put their BNB to work. One such platform is Venus, which enables BNB holders to earn interest by supplying BNB liquidity to Venus’ lending protocol. The BNB supplied to Venus is minted into a token called Venus BNB (vBNB).

Overview of BNB and Binance Smart Chain

BNB is the native token of Binance Chain, a blockchain network developed by Binance cryptocurrency exchange. BNB powers the Binance ecosystem, allowing users to pay fees on the exchange at a discount. More recently, BNB has been adopted on Binance Smart Chain, a parallel blockchain that is EVM-compatible and designed for running decentralized apps (dApps).

The transition to Binance Smart Chain, with its emphasis on DeFi, has expanded BNB’s utility and fueled its popularity. BNB ranks among the top 5 cryptocurrencies and has a market cap over $80 billion as of November 2022. However, prior to Venus, there were limited DeFi applications enabling BNB holders to earn yields.

What is Venus BNB (vBNB)?

Venus is an algorithmic money market and stablecoin protocol founded in 2020. It operates on Binance Smart Chain, allowing users to supply collateral assets like BNB and borrow against them. Supplied assets earn variable interest based on demand for borrowing.

When BNB is supplied to Venus, it is converted 1:1 to vBNB. Each vBNB represents 1 BNB, but also accrues interest and unlocks additional DeFi capabilities native to Venus. Hence, vBNB expands BNB’s utility in decentralized finance while still maintaining a peg to BNB’s value.

How Venus BNB Works

The Venus protocol centers around its decentralized bank called Venus Vault (V2). Users can supply supported assets like BNB to V2 to begin earning yields. Here’s how it works:

1. User deposits BNB to V2 via the Venus app.
2. V2 mints vBNB tokens representing the deposited BNB – initially 1 vBNB = 1 BNB.
3. User can now use vBNB in other DeFi apps on Venus, or redeem 1:1 for the underlying BNB.
4. As borrow demand arises, V2 algorithmically sets interest rates paid to suppliers.
5. vBNB balances increase to reflect earned interest.

Suppliers can withdraw the underlying BNB plus earned interest at any time by redeeming vBNB tokens. Redemptions are subject to a 0.5% fee.

How Venus BNB Differs from Traditional BNB

While vBNB represents BNB on a 1:1 basis, it differs in some key ways:

• Earns variable interest – vBNB balance increases to reflect interest earned from Venus protocol. BNB itself does not earn yields.
• Unlocks DeFi capabilities – vBNB can integrate with other Venus dApps for lending, borrowing, synthetic assets.
• Governance rights – vBNB holders can vote on protocol changes. BNB itself does not confer governance rights.
• Potential loss of peg – In prolonged market volatility, vBNB could depeg from BNB if lending collateral is liquidated.

So while vBNB isn’t a separate cryptocurrency, it expands what BNB holders can do while still maintaining a peg to BNB’s underlying value.

Benefits of Using Venus BNB

For BNB holders, there are several advantages to supplying BNB liquidity to Venus:

• Earn interest on BNB – Interest rates vary based on market demand, but have reached 10%+ at times, offering BNB holders a way to earn passive income.
• Access DeFi apps – vBNB unlocks all of Venus’ DeFi capabilities, including borrowing, synthetic stock assets, and more.
• Help secure Venus protocol – Supplied assets provide the liquidity that enables Venus to operate. Users share protocol fees.
• Exposure to Venus governance – vBNB conveys voting rights in protocol governance, allowing holders to shape Venu’ future.
• Liquidity mining rewards – Venus has offered boosted reward programs at times for major supplied assets like vBNB.

For a major asset like BNB with limited DeFi availability, Venus presents an attractive option to put holdings to productive use.

The Role of vBNB in Decentralized Finance (DeFi)

Venus is one of several protocols expanding DeFi capabilities for major assets like BNB. By converting BNB to vBNB, Venus unlocks all the composability and synergies inherent to decentralized finance.

Some ways vBNB shapes the evolution of DeFi:

• Brings assets from outside Ethereum into cross-chain DeFi.
• Attracts assets with limited DeFi exposure thus far.
• Boosts stablecoin diversification – vBNB can collateralize Venus USD (VUSD) stablecoin.
• Enhances lending diversity – borrowers can leverage BNB/vBNB across protocols.
• Strengthens DEX liquidity – vBNB integrates into VSwap DEX for swaps.

By bridging networks like Binance Smart Chain to DeFi, vBNB helps advance DeFi’s core values of open access, transparency, composability between dApps and users across all blockchains.

Risks and Drawbacks of Venus BNB

While Venus offers BNB holders new opportunities, there are also risks investors should consider:

• Impermanent loss – If vBNB depegs from BNB, redeeming vBNB could realize losses vs simply holding BNB.
• Smart contract risk – Venus is subject to audits, but risk of bug is present as with all DeFi apps.
• Liquidation risk – Prolonged volatility could force liquidation of collateral like vBNB.
• Holders forgo staking rewards – Supplying to Venus means foregoing native BNB staking yields.
• Speculative asset – vBNB value depends on Venus protocol success – intrinsically tied to a new DeFi protocol.

As with any rapidly evolving space like DeFi, new opportunities come with new types of risks that warrant thorough due diligence.

How to Acquire and Store vBNB

If the yields appeal, here are the basic steps to start supplying BNB to Venus:

• Acquire BNB – Have BNB in a compatible wallet. A Web3 wallet like MetaMask connected to BSC works.
• Navigate to app.venus.io – Connect wallet and access Venus protocol site.
• Supply BNB to Venus Vault – Approve and supply BNB. It will be minted 1:1 to vBNB.
• Earn yields – vBNB balance will increase automatically as interest accrues.
• Access DeFi apps – Use vBNB within Venus ecosystem for lending, synthetic assets, swaps etc.
• Withdraw – Redeem vBNB for underlying BNB + interest anytime via Venus Redemption page.

Storing keys safely and avoiding phishing links is critical when using any DeFi protocol. Hardware wallets provide an added security layer for high amounts.