- Trader captures $15K profit after Venus THE exploit liquidation collapse.
- Recursive borrowing strategy pushes THE price from cents to nearly five dollars.
- Liquidations flood markets with tokens, triggering sharp collapse across DeFi markets.
Volatility swept across decentralized finance markets after an exploit struck the Venus Protocol’s THE market and pushed the token through extreme price swings. The unusual activity quickly attracted attention from traders monitoring lending platforms and oracle driven collateral systems. A crypto trader and researcher later revealed how the unfolding liquidation created a rare trading opportunity. Weilin William Li shared details of the exploit and explained how he capitalized on the collapse by opening a short position during the final stage of the attack.
The incident started when a market participant targeted THE, a collateral asset with limited on-chain liquidity. The token traded in thin markets, and relatively small buying pressure pushed the price sharply higher within minutes. The attacker deposited THE as collateral inside the Venus lending protocol and then borrowed other assets against that collateral. Borrowed funds were immediately used to purchase additional THE tokens from the market.
This cycle repeated multiple times, gradually increasing the token’s market price and raising the value of collateral held inside the protocol. As the token price climbed, the lending system recognized higher collateral values through its time-weighted price oracle. According to Li, the attacker relied on this recursive borrowing structure to repeatedly expand leverage while inflating the asset’s valuation inside the protocol.
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Recursive Buying Cycle Pushes Token Price Toward $5
As buying pressure intensified, THE surged from roughly $0.27 to nearly $5 during the manipulation phase. Market liquidity remained extremely limited during that surge, which amplified every new purchase.
Because the token lacked deep trading volume, each round of buying pushed the price higher and strengthened the attacker’s borrowing capacity. The lending platform therefore registered increasing collateral values while the attack unfolded.
Researchers studying decentralized finance vulnerabilities have previously described similar recursive manipulation strategies. These tactics rely on oracle updates that gradually reflect rising prices after aggressive buying activity.
Donation Technique Expands Collateral Beyond Supply Limits
The attacker later used a donation technique widely known among Compound based lending platforms. After supplying collateral, additional THE tokens were transferred directly into the protocol’s contract. This transfer artificially increased the collateral balance recognized by the system without following normal supply cap limits. As a result, the attacker effectively bypassed exposure restrictions designed to contain risk.
Despite already extracting borrowed assets, the attacker continued purchasing more tokens to sustain the inflated price. However, selling pressure steadily increased as market participants reacted to the extreme valuation.
Liquidation Wave Sends THE Token Back Below Pre-Attack Levels
The growing position eventually pushed the attacker’s account health factor dangerously close to liquidation territory. At that point, the wallet controlled collateral valued near $30 million on paper. However, the broader market lacked enough liquidity to absorb that volume once liquidation started. Forced selling therefore flooded trading venues with large amounts of THE tokens.
Li observed the imbalance forming and opened a short position as liquidations began across the lending platform. The rapid influx of sell orders quickly reversed the earlier price surge. THE collapsed to around $0.24 as traders rushed to exit positions and existing holders sold into the chaos. Li closed the short position near that level and reported a profit of roughly $15,000.
The Venus exploit demonstrates how recursive borrowing strategies combined with thin liquidity can distort collateral valuations and trigger sharp market reversals once forced liquidations begin.
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