Venus Protocol back online after attack, but decentralisation debate heats up

Venus Protocol service restoration was completed within 24 hours after the BNB Chain-based money market halted operations in response to a phishing exploit. The incident, which began when a user unknowingly approved malicious transactions, allowed an attacker to siphon tokens and trigger panic across the platform.

Blockchain security firm PeckShield initially estimated losses at $27 million but later revised the figure to $13.5 million after factoring in the attacker’s debt position. Venus Protocol responded with an emergency governance vote that authorized a forced liquidation of the exploiter’s wallet, recovering funds and allowing operations to resume.

“There is significant financial benefit to our clients being able to receive the payments two days earlier,” — Bill Sexton, CEO, Trimont.

Binance founder Changpeng Zhao (CZ) praised the rapid response, writing on X: “Good fast response. Great to see the community coming together to protect a user and fight against hackers.”

Community-driven recovery process

The Venus Protocol service restoration was executed in phases. First, the protocol paused all activity to prevent further exploitation while conducting security reviews of its smart contracts and front-end systems. Within five hours, community governance approved a partial reopening so that users could adjust positions and avoid liquidations.

The second stage targeted the attacker’s wallet directly. Governance members voted to authorize a rare force liquidation of the exploiter’s collateral positions. Once approved, smart contracts executed the process automatically, securing most of the stolen assets.

PeckShield later confirmed that recovery was successful, publishing transaction records on BSCScan. The firm described the incident as “a novel case study in how decentralized governance can be mobilized in emergency situations.”

Despite the swift Venus Protocol service restoration, its native XVS token initially dropped by 5% before recovering to $6.16 at the time of writing, according to CoinGecko. While up slightly on the day, XVS remains down more than 95% from its May 2021 peak of $147.

A test of DeFi decentralization

While the Venus Protocol service restoration protected users, the use of governance-led force liquidation has prompted criticism. Some investors questioned whether the intervention undermined DeFi principles by introducing centralized decision-making into a system marketed as autonomous.

“Emergency governance powers are necessary, but they reveal the limits of decentralization during crises,” — Dmitriy Budorin, CEO of Hacken, in a report on BNB Chain security.

Force liquidation is usually automated, triggered by smart contracts when collateral ratios fall below safe levels. In this case, however, Venus Protocol relied on a manual governance vote to target a specific wallet, highlighting a balance between decentralization and crisis management.

Industry observers note that such measures are common in DeFi, where protocols often embed “circuit breaker” governance tools to address unforeseen exploits. Still, the Venus Protocol service restoration underscores the trade-off: rapid intervention to safeguard funds versus a temporary suspension of decentralization ideals.

Broader implications for BNB Chain security

The phishing exploit behind the Venus incident marks the first major security breach on BNB Chain in several months. According to Hacken and BNB Chain’s joint report, ecosystem losses fell 70% year-on-year, from $161 million in 2023 to $47 million in 2024.

Unlike previous high-profile BNB Chain attacks such as the 2022 Binance bridge hack that saw $570 million drained on the Venus case did not exploit smart contract vulnerabilities. Instead, it targeted user behavior, highlighting phishing and access control as the primary risks. Hacken’s report found that 69% of BNB Chain’s recorded losses stem from compromised user keys rather than protocol-level flaws.

For crypto investors, the Venus Protocol service restoration highlights both strengths and vulnerabilities in DeFi governance models. On one hand, the platform successfully mobilized its community to recover funds and restore confidence. On the other, reliance on governance overrides raises critical questions about how decentralized DeFi protocols truly are when confronted with real-world crises.

As Venus Protocol stabilizes with $1.86 billion in total value locked, down from its $6.5 billion peak as its experience may serve as a case study for how future DeFi platforms balance decentralization with emergency control.