BENQI Review: Algorithmic Liquidity Market Protocol on Avalanche
Borrowing and lending cryptocurrency are vital services for both new entrants and experienced traders aiming to boost their income as the cryptocurrency business has been carving a new path towards the global economy of the future.
While Decentralized Finance (DeFi) attempts to resolve several issues on the Ethereum blockchain, BENQI, located in Avalanche, joins the market with the hope of resolving them with their algorithmic liquidity market protocol.
BENQI is a decentralized non-custodial liquidity market protocol built on the Avalanche platform.
Users can simply lend, borrow, and earn interest with their digital assets via the protocol. As a result, users can make passive money by lending, and borrowers have the option of borrowing with excessive collateral.
Avalanche is an open-source platform for developing and launching decentralized applications (dapps) and other blockchains. The ecosystem is highly scalable to manage global finance, with a transaction throughput of 4500 tps.
AVAX, the native token, is used to pay transaction fees and staking to protect the network. In addition, it functions as a unit of account for the platform's many assets.
BENQI was founded by a group of people who were deeply involved in the Ethereum and decentralized finance ecosystems, with the goal of offering a Liquidity Market Protocol on a decentralized platform that is extremely scalable.
Since the DeFi boom in 2020, Ethereum has been experiencing congestion, resulting in high network fees, which has been a major barrier to consumers.
The BENQI team has realized that Avalanche could be the next smart contract and asset successor, easing Ethereum's load and allowing for frictionless transactions for users.
Despite the fact that the Avalanche ecosystem is still in its infancy, with only a few DeFi protocols, the team discovered it was the first to introduce a loan and borrowing protocol to the network.
The BENQI protocol democratizes access to decentralized financial products by offering a platform where users can instantaneously provide and withdraw liquidity, or utilize their supplied assets as collateral to a shared liquidity market, with a focus on ease of use and cheap fees.
Furthermore, it provides a real-time, transparent view of interest rates based on the asset's market supply and demand.
BENQI is also a bridge that connects Ethereum to the Avalanche bridge (AEB.xyz), allowing existing Ethereum users to access a cheaper, faster alternative money market by eliminating the $300 gwei costs on Ethereum and the 3 minute transaction time.
BENQI, which was the initial lending and borrowing protocol on Avalanche as a core layer of DeFi, calculates rates on the platform using a time-based technique to give consumers the most accurate rates.
Due to the network that BENQI is built on and optimized smart contracts, transaction fees for using the protocol are insignificant. BENQI also supports AVAX borrowing and lending, as well as additional UTXO-based coins when they become available on the network.
Users can deposit their assets on the site, which are subsequently added to a pool that can be borrowed by others. As a result, users who lend liquidity to the protocol can receive a passive income, while those who borrow can do so in a way that is over-collateralized.
Smart contracts control the funds stored in BENQI. The founding team of BENQI will lead the project's governance at first, but it will eventually be delegated to a Decentralized Autonomous Organization (DAO) using QI coins.
Holders of the QI token can make suggestions or vote on topics that affect the protocol's development.
Its key channel is the BENQI App.
The QI coin is an Avalanche native asset that drives the BENQI system. To vote and decide on the outcome of proposals submitted via BENQI Improvement Proposals, QI is required (BIPs).
QI will have a total quantity of 7,200,000,000 tokens, which 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
Deposits are not subject to any restrictions. Any amount can be deposited by users. They can withdraw assets that aren't being utilized to borrow, and their loans won't be liquidated as a result.
Users that deposit tokens will earn interest on their assets, which will be adjusted algorithmically dependent on market conditions. Each asset has its own supply and demand market, with the APY (Annual Percentage Yield) fluctuating over time.
The BENQI protocol uses the QiToken to display the user's asset balance. When users contribute assets to the protocol, it is transmitted to the wallet and functions to accrue value compared to the initial 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.
The protocol's goal is to create BENQI Avalanche subnets that are comparable to Polkadot Parachains and Compound Cash, but without the VM limits and difficulties of having a restricted amount of parachain slots.
As a result, validator nodes can run any VM they want, and validator nodes can have custom requirements to meet higher regulatory compliance for institutional networks. Institutions will be able to develop regulatory-compliant networks and platforms without being bound by VM limits thanks to BENQI subnets.
Furthermore, while using BENQI v1 and v2 as a benchmark, the BENQI team will be able to provide real-world insights to institutions on how BENQI money markets are used as their backend stack.
Since the inception of the BENQI protocol, the team has made important breakthroughs. After debuting on the Avalanche blockchain, the algorithmic liquidity protocol reached a total value locked (TVL) of over $2.5 billion, demonstrating the rapid expansion of DeFi lending and borrowing services.
In April, the team raised $6 million in a private funding round led by Ascensive Assets, with participation from Dragonfly Capital, Arrington XRP Capital, Mechanism Capital, Morningstar Ventures, Vendetta Capital, TRGC, Genesis Block, and other notable blockchain and Avalanche ecosystem investors.
The QI token's public sale on the Pangolin market was completely sold out.
BENQI was not only the first protocol in Avalabs' venture portfolio, but it also attracted global KOL and VC participation.
Launching products with a clear go-to-market strategy that includes minimal fees, supporting additional assets that aren't available from a rival, and completing the testnet release with UI/UX for the web page and mobile.
BENQI plans to implement governance with v2 and flash-loans, offer new assets through governance voting, and score wallet credit to unlock further platform features as part of its strategic pipeline.
Its primary competitors are based on Ethereum, where the transaction fees alone make it impossible for most users to earn income. Furthermore, using Binance Smart Chain (BSC) exposes users to the possibility of the network being shut down at any time, resulting in the loss of their holdings.
BENQI is based on Avalanche, which is currently decentralized with over 900 validator nodes in operation, whereas BSC has only 21 nodes that are primarily owned by a single corporation.
To learn more about BENQI – please click here.
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