BENQI Review: Algorithmic Liquidity Market Protocol on Avalanche

As the cryptocurrency industry has been creating a new path towards the global economy of the future, borrowing and lending crypto are important services for both new entrants and experienced traders looking to increase their income.

While Decentralized Finance (DeFi) is fixing some issues on the Ethereum blockchain, Avalanche-based BENQI enters this market with the hope to fix them with its algorithmic liquidity market protocol.

What Is BENQI?

Built on the Avalanche platform, BENQI is a decentralized non-custodial liquidity market protocol.

Via the protocol, users are able to easily lend, borrow, and earn interest with their digital assets. As such, users can earn passive income by lending, and borrowers have the potential to borrow in an over-collateralized manner.

What Is Avalanche?

Avalanche is an open-source platform that was created for building and launching dapps, as well as other blockchains. With a transaction throughput of 4500 tps, the ecosystem is highly scalable to handle global finance.

Its native token, AVAX, is used to pay transaction fees and secure the network by staking. Besides, it also serves as a unit of account among many assets available on the platform.

Who Should Use BENQI?

Founded by a group of who were deep in the Ethereum and decentralized finance ecosystem, BENQI aims to address the issues that are happening on Ethereum by providing a Liquidity Market Protocol on a decentralized platform that is highly scalable.

Since the DeFi boom of 2020, Ethereum has been experiencing congestion that has begun to cause high network fees which is currently a major barrier to users.

The BENQI team has realized that Avalanche could potentially be the next successor for smart contracts and assets which could ease up load for Ethereum and provide frictionless transactions for the user.

Although the Avalanche ecosystem is currently still in its infancy with a small number of DeFi protocols, the team found it was the first mover into the Avalanche network with a lending and borrowing protocol.

Focusing on ease of use, and low fees, the BENQI protocol democratizes access to decentralized financial products by providing a place that users are supported to instantly supply and withdraw liquidity, or using their supplied assets as collateral to a shared liquidity market.

In addition, it offers a live and transparent view of interest rates around the clock based on the asset’s market supply and demand.

BENQI is also a bridge to connect Ethereum to Avalanche bridge (AEB.xyz), therefore, the protocol can provide existing users on Ethereum a cheaper, faster alternative money market by removing $300 gwei fees on Ethereum as well as 3 minutes required for transactions.

Since being the first lending and borrowing protocol on Avalanche as a foundational layer of DeFi, BENQI uses a time-based approach to calculate the rates on the platform to give users the most accurate rates.

Fees for making transactions with the protocol are negligible due to the network that BENQI is built on and streamlined smart contracts. BENQI also allows AVAX borrowing and lending, with other UTXO-based coin integration when it is ready on the network.

How Does BENQI Work?

The platform works by allowing users to deposit their assets which will then be added to a pool that can be borrowed by others. As a result, users who lend liquidity to the protocol are able to earn a passive income and those who borrow can do for an over-collateralized manner.

The funds stored in BENQI are managed by smart contracts. In the beginning, governance of BENQI will be led by the founding team of the project, then will eventually be delegated to a Decentralized Autonomous Organization (DAO) by using QI tokens.

Holders of the QI token are able to give suggestions or and vote on issues to drive the protocol.

Its key channel is the BENQI DAapp.

BENQI (QI) Token

The QI token is a native asset on Avalanche and powers the BENQI protocol. QI is necessary to have the right to vote and decide on the outcome of proposals via BENQI Improvement Proposals (BIPs).

The total supply of QI will be 7,200,000,000 tokens and will be distributed as follows:

  • Liquidity Mining Program: 45% (3,240,000,000 QI tokens)
  • Token Sale: 25% (1,800,000,000 QI tokens)
  • Treasury: 15% (1,080,000,000 QI tokens)
  • Team: 10% (720,000,000 QI tokens)
  • Exchange Liquidity: 5% (360,000,000 QI tokens)

Supply/Deposit/Withdraw on BENQI

There is no limit for deposits imposed. Users can deposit any amount. They are allowed to withdraw assets that are not actively being used to borrow and do not cause a liquidation on their loans.

Users who deposit their tokens will receive interest on their assets that will algorithmically adjust based on the market. Each asset has its market of supply and demand with its corresponding Annual Percentage Yield (APY) changing over time.

The QiToken presents the user’s asset balance supplied to the BENQI protocol. It is sent to the wallet when users supply assets to the protocol and function to accrue value relative to the original asset through the token’s interest rate.

QiTokens minted will be based on the underlying asset supplied to the protocol such as QiAVAX, QiLINK, QiWBTC, or QiUSDT.

BENQI’s Vision

The protocol’s vision is to launch BENQI Avalanche subnets which are similar to Polkadot Parachains and Compound Cash but without the constraints of Virtual Machine (VM) and pains of a limited number of Parachain slots.

Therefore, validator nodes can run their VM of choice as well as having tailored requirements for validator nodes to meet greater regulatory compliance for institutional networks. Through BENQI subnets, institutions will be able to build regulatory compliant networks and platforms without being subjected to VM constraints.

Moreover, the BENQI team will be able to provide real-world insights to institutions on how BENQI money markets are used as their backend stack when taking BENQI v1 and v2 as a benchmark.

The team has achieved significant milestones since the founding of BENQI protocol. The algorithmic liquidity protocol on Avalanche blockchain hit a total of over $2.5 Billion in total value locked (TVL) after launching on the Avalanche network which also proves the explosive growth of DeFi lending and borrowing service.

In April, the team also had raised $6 Million in a private funding round led by Ascensive Assets with the participation of several leading investors on blockchain and the emerging Avalanche ecosystem such as Dragonfly Capital, Arrington XRP Capital, Mechanism Capital, Morningstar Ventures, Vendetta Capital, TRGC, Genesis Block, among others.

A public sale of the QI token on Pangolin exchange sold out.

BENQI not only became the first protocol in Avalabs venture portfolio but also Global KOL and VC representations.

Launching products with clear go-to-market strategy including low fees, supporting other assets not available to a competitor, and completing the release on testnet with UI/UX for web page and mobile.

As part of the strategic pipeline, BENQI is set to launch governance with v2 and flash-loans, introduce new assets through governance voting, and score wallet credit to unlock additional platform features.

Its competitors are mainly on Ethereum with the transaction alone making it impossible for most users to earn the interest rates.

In addition, deploying on Binance Smart Chain (BSC) still puts users at the risk of the network being shut down at any point in time and losing access to their assets.

BENQI is built on Avalanche, which is currently decentralized with over 900 validator nodes running while BSC only has 21 nodes that belong to mainly a single entity.

To learn more about BENQI – please click here!

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