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In recent years, people have witnessed numerous Internet of Things (IoT)-based attacks with the exponential increase in the number of IoT devices. Alongside this, the means to secure IoT-based applications are maturing slower than our budding dependence on them. Moreover, the vulnerabilities in an IoT system are exploited in chains to penetrate deep into the network and yield more adverse aftereffects. To mitigate these issues, this paper gives unique insights for handling the growing vulnerabilities in common IoT devices and proposes a threat architecture for IoT, addressing threats in the context of a three-layer IoT reference architecture. Furthermore, the vulnerabilities exploited at the several IoT attack surfaces and the challenges they exert are explored. Thereafter, the challenges in quantifying the IoT vulnerabilities with the existing framework are also analyzed. The study also covers a case study on the Intelligent Transportation System, covering road transport and traffic control specifically in terms of threats and vulnerabilities. Another case study on secure energy management in the Smart Grid is also presented. This case study covers the applications of Internet of Vulnerable Things (IoVT) in Smart energy Grid solutions, as there will be tremendous use of IoT in future Smart Grids to save energy and improve overall distribution. The analysis shows that the integration of the proposed architecture in existing applications alarms the developers about the embedded threats in the system.