20 May 2021 · 4 min read

Two More Binance Smart Chain Projects Report Incidents, Prices Plummet

Binance Smart Chain (BSC), ran by the crypto exchange giant Binance, has landed in hot water due to the incidents suffered by its projects - yet again. Yesterday it was Venus Protocol (XVS), and today Pancake Bunny (BUNNY).

Source: a screenshot, Instagram/binance

Venus is a project built by Binance, while Binance Labs backed MOUND, the team behind yield platform Pancake Bunny - both built on BSC.

On May 19, Venus released an incident report, describing what they called "a large string of market liquidations in the XVS market." As more liquidations occur, they explained "the price goes lower, thus looping this event, until it reaches a bottom where there is nothing more to liquidate."

At one point on May 18, XVS price jumped from USD 78.3 to USD 139.8, after which it dropped to USD 43.2 by the next day.

No funds were lost, the team said. "While there is a negative balance due to the fast drop in price and liquidators taking full advantage of the situation, Venus will deploy its grant program and utilize XVS to cover the system shortfall."

"The system worked as intended and liquidators did their jobs," argued Venus Protocol founder, Joselito Lizarondo, urging people not to over-borrow and to "pay attention to market conditions and volatile swings to ensure your positions don’t get liquidated with fees."

Per journalist 'Wu Blockchain', Venus had similar loopholes before, while research analyst at The Block, Igor Igamberdiev, wrote that the manipulation of XVS price "resulted in USD 200M+ DeFi liquidations and a USD 100M+ of protocol bad debt," potentially created by two separate exploiters.

"These funds here were lost not by those who were supposed to become liquidation’ victims but by ordinary protocol users who deposit money in it," Igamberdiev said. "Until Venus finds a way to get rid of the bad debt, the protocol is undercollateralized, and the bank run will be challenging."

Today, PancakeBunny Finance reported that they suffered an economic exploit that attacked the price of BUNNY using flash loans, causing the price to plummet.

The price saw a sudden plunge from USD 150.9 to USD 11.8, per CoinGecko.

The hacker used decentralized exchange PancakeSwap to borrow a huge amount of binance coin (BNB), then manipulated the price of USDT/BNB as well as BUNNY/BNB, getting "a huge amount" of BUNNY through this flash loan, after which they dumped all of it in the market, and paid back the BNB through PancakeSwap, the team said.

They stressed that none of the vaults have been breached, and that there are reports with "an inaccurate amount of losses."

Some, including Igamberdiev, argued the loss to be more than USD 40m.

The developers are working to enable the currently frozen withdrawals, they said, being in the process of testing, which they expect should be completed in a matter of hours.

The team also said that they are working on a reimbursement plan. "Transactions cannot be reverted, but the BUNNY team is working on a plan to reimburse lost value," they said.

At 7:35 UTC, BUNNY is trading at USD 34.26, after it dropped 80% in a day and 88% in a week. Its market capitalization is USD 17.5m, and total value locked (TVL) in it is USD 1.3bn.

Venus is changing hands at USD 52.5, after it fell 12% in a day and 56% in a week. Its market capitalization is USD 528m, and TVL USD 4.2bn.

Quality concerns

This is not the first (or the second) time that a BSC-based projects experienced issues, causing the Cryptoverse members to question the overall quality of BSC-related projects and teams behind them.

Industry observers are suggesting that it became all too common for projects on BSC to be either rugs or exploited by hackers.

In late April, for example, Uranium Finance suffered a security breach, seeing millions of dollars in ethereum (ETH) on the move and laundered through a popular privacy tool.

Since its launch in September 2020, BSC has been observed as a potential competitor to Ethereum, and a number of projects, including some decentralized finance (DeFi) ones, have expanded to BSC or migrated to it from Ethereum, citing high fees as a reason.

That said, BSC now seems to be increasingly gaining negative attention due to some of its projects facing issues.

Popular crypto analyst Hasu described this as an "expensive day for BSC projects," adding that "maybe copy-paste isn't everything," suggesting, like many others, that these are low-quality projects.

Furthermore, some allege issues with the chain itself, also again discussing the centralized aspects of the chain.

"BSC's proof of stake implementation is competitive instead of cooperative and as CZ [Changpeng Zhao, CEO of Binance] asserts the most protocol control there's an increased incentive from network participants to "beat the final boss"," argued Chief Operating Officer at AltMarket Bryce Weiner.

One commenter claimed to be running a BSC node, stating that the "network is constantly forking uncontrollably", with some five forked blocks coming with every block that is part of the main chain. "Several validators are running sub-par hardware and cannot keep up with the rest of the network," said Crypto Ultron.

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