- BENQI protocols changing the Avalanche network into a secure platform for users to earn rewards on their digital assets.
- Different types of BENQI protocols
The Decentralized Finance (DeFi) ecosystem, with its numerous transparent, accessible, and permissionless blockchain platforms, provides users unlimited access to financial tools. However, DeFi faces some issues on these platforms, such as congestion and high network fees. BENQI, a DeFi protocol built on Avalanche, has been recently launched as a platform to alleviate these problems while allowing users to engage in DeFi with small capital, and lend, borrow, and earn interest on their crypto.
Benqi and its Working Mechanism
With an aim to bridge DeFi and Traditional finance, the BENQI project was launched on August 19, 2021, on the Avalanche C-chain. It is a DeFi liquidity market protocol deployed on a highly scalable, decentralized, and accessible Avalanche network.
The most crucial elements of this protocol include prioritizing security, stability, usability, and democratizing access to decentralized finance products among the masses via blockchain technology.
BENQI protocol allows borrowers and lenders to put their stagnant digital assets to work and earn a passive income in return for supporting the security of the blockchain network.
QI is the native currency/token of BENQI and the native token of Avalanche. QI tokens have governance purposes meaning token holders have the power to steer the direction of protocol by participating in decision-making and vote on the proposals of BENQI’s decentralized autonomous organization (DAO).
Moreover, QI tokens can be used as an asset by lenders to earn rewards while they can also work as collateral assets for borrowers to borrow other cryptocurrencies.
The unique suite of the BENQI ecosystem consists of two key protocols – BENQI Liquid Staking (BLS) and BENQI Liquidity Market (BLM).
Benqi Liquid Staking (BLS) Protocol
Avalanche is a Proof-of-Stake (PoS) mechanism-based network. Users stake their digital assets, in this case native Avalanche token, AVAX on the validator nodes. Avalanche generates returns on these staked assets for rewarding the users to secure the network.
Although the users are bestowed with rewards, this protocol ‘locks up’ their tokens for a predetermined staking period during which the user cannot trade, sell, or transfer these assets.
Liquid staking can solve this issue of PoS networks by imparting the users with the opportunity of unlocking the staked assets that they can use on any DeFi platform while simultaneously earning passive returns for securing the blockchain network.
BENQI protocol has launched a Liquid Staking solution for the users of the Avalanche network that tokenizes staked AVAX. By staking AVAX on BLS, users receive BENQI Liquid Staked AVAX, i.e., sAVAX, an interest bearing version of AVAX.
sAVAX has the properties to be easily transferred, traded, or used within the DeFi dApps such as automated makers (AMMs), lending and borrowing protocols, and yield aggregators.
As the traditional staking of the AVAX on Avalanche is done on Avalanche P-chain, the users are required to execute cross-chain transfers to get started. However, BLS facilitates the seamless staking of AVAX on the Avalanche C-chain and therefore, now the users only require an EVM-compatible wallet and some AVAX to start earning rewards.
Benqi Liquidity Market (BLM) Protocol
By deploying the BLM protocol on the Avalanche, it provides the users with the ability to effortlessly earn interest on their supplied assets or lend and borrow any available asset from the platform in an over-collateralized manner.
BENQI’s BLM protocol is operated primarily on smart contracts without the interventions of human intermediaries, as opposed to the traditional lending and borrowing markets.
The interest on the assets is calculated algorithmically on the basis of the asset’s market supply and demand. Depositors who are providing liquidity to the protocol get earn yield based on the algorithm. On the other hand, borrowers use the deposited assets as a collateral to borrow other types of assets.
Blue-chip assets such as wBTC, wETH, AVAX, sAVAX, stablecoins (e.g., BUSD) are some of the most widely popular assets listed on BLM which represents the universal access of the protocol.
Another unique feature of BLM is that it enables the users with deep liquidity for borrowing. Moreover, using BLM, the borrowed assets can be easily transferred to top centralized exchanges while bridging them to the major layer-1 networks like BNB chain, Ethereum, Polygon, and Arbitrum is also plausible.
Conclusion
BENQI is a rising project in the market which is backed up by an accessible and scalable Avalanche blockchain network. With its Liquid Staking and Liquidity Market protocols, BENQI is providing opportunities to all kinds of users to enter the DeFi system without barriers and permissions and earn a passive income.
