Venus Protocol Hacked for $3.7 Million Loss: $THE Low-Liquidity Tokens Became Attack Vector, BNB Chain DeFi Sounds Alarm Again

Decentralized lending protocol Venus Protocol was attacked on March 15, 2026, resulting in a loss of approximately $3.7 million in digital assets and leaving about $2.18 million in bad debt. The attacker manipulated the price of the low-liquidity token $THE, combined on-chain borrowing with off-chain derivatives positions, and executed cross-platform arbitrage, once again exposing systemic risks in DeFi collateral mechanisms.

Attack Overview: How a Seven-Step Chain Reaction Swept Through Venus

According to a detailed report published on X (formerly Twitter) by on-chain analysis firm Lookonchain, the attack was meticulously structured, utilizing privacy tools, multiple lending protocols, and centralized exchanges to form a cross-chain operation that was difficult to detect in real-time.

Step 1: Source of Funds
The attacker used privacy tool Tornado Cash to obtain about 7,400 ETH, masking the origin of the funds.

Step 2: Borrow Stablecoins
Deposited ETH into Aave to borrow approximately $9.92 million in stablecoins as capital for subsequent operations.

Step 3: Pump $THE Price
Using multiple wallets to buy large amounts of $THE on centralized exchanges, simultaneously opening long positions to artificially inflate the token’s price.

Step 4: Overvalue Collateral for Borrowing
When the token price was inflated, two main wallets deposited about 36.1 million $THE into Venus Protocol as collateral, borrowing around $5.07 million in assets, including about 20 BTC, 1.516 million CAKE, and 2,172 BNB.

Step 5: Dump $THE
After borrowing, the attacker sold large amounts of $THE on centralized exchanges and opened short positions, causing the token’s price to plummet rapidly.

Step 6: Chain Reaction Liquidation
The collapse of $THE collateral triggered massive liquidations on Venus, making it impossible to recover the loans fully, resulting in bad debt.

Step 7: Off-Chain Profits
The attacker’s real gains came from derivatives positions on centralized exchanges, with off-chain profits enough to offset the visible on-chain losses.

Bad Debt Composition and Protocol Response

After liquidation, Venus Protocol was left with about 1.18 million CAKE and 1.84 million $THE in bad debt, totaling roughly $2.18 million in unrecoverable losses. The protocol immediately paused lending and withdrawals for $THE, and some related pools (such as the CAKE pool) were affected. Multiple low-liquidity markets’ collateral factors were also reduced as an emergency measure.

Venus Protocol has not yet issued a full official statement, but community reports indicate that other market positions remain unaffected. Users are advised to stay tuned to Venus’s official channels for updates.

This attack method is not new

This incident is similar to the 2022 Mango Markets attack, both exploiting oracle manipulation and design flaws in collateral supply limits. Both events reveal that protocols allowing low-liquidity tokens as collateral and relying heavily on external exchange prices are highly vulnerable to price manipulation.

Risk Warning: Analysts point out that DeFi lending protocols that do not impose strict supply caps, concentration limits, and independent oracle mechanisms on low-liquidity collateral are continuously exposed to similar attack risks. This incident again calls for the industry to reevaluate collateral eligibility standards and risk parameter design.

This article on Venus Protocol’s $3.7 million loss: $THE low-liquidity token as an attack vector, BNB Chain DeFi warning, first appeared on Chain News ABMedia.