Past exploit threatens $200M liquidation if BNB falls below $220
Binance's BNB is at the risk of "the single largest liquidation in DeFi" if its price were to drop 20%.
Over the past week, BNB has experienced a significant sell-off as crypto traders reduced their exposure to the token amid regulatory woes. On June 5, the U.S. Securities and Exchange Commission (SEC) filed against Binance, alleging the firm had violated federal securities laws.
Among the allegations, it was claimed the BNB coin and the Binance USD (BUSD) stablecoin were securities – a charge Binance has disputed.
BNB has crashed more than 15% to $260 as of press time from $310 on June 4, according to CryptoSlate’s data.
If BNB’s price continues its descent, $204.2 million would be liquidated on the decentralized finance (DeFi) lending protocol, Venus.
DeFi researcher Ignas characterized the current situation as “the single largest potential liquidation in all DeFi that cannot be closed.”
He explained that the potential liquidation event was due to an exploit in October 2022 in which the attacker utilized a vulnerability on the BNB cross-chain bridge to mint 2 million BNB tokens.
900,000 stolen BNB tokens were deposited on Venus as collateral, which was used to borrow other assets from the protocol – effectively laundering a significant proportion of the stolen funds.
Binance halted the BNB Chain and upgraded the network to mitigate the impact of the exploit.
Blockchain analytical firm Messari pointed out that the liquidation could potentially cause cascading negative effects on the BNB price and BNB Chain users. Due to this, VenusDAO has whitelisted BNB Chain as the sole liquidator of the position.
Ignas explained that this move would stabilize the market as “BNB Chain will use their own money to liquidate (close) the position.”
Binance regulatory troubles
On June 6, the SEC moved to freeze the assets of its U.S. subsidiary, Binance US.
In addition, Binance US recently announced plans to transition to a crypto-only exchange after its banking partners decided to halt its USD payment channels.
The platform has stated it would defend itself in court.