We saw some interesting trends in the crypto space over the past year. While Ethereum has made massive profits, the platform has also left a sour taste on many institutions and individuals who want to participate in DeFi. “Growing pains” don’t cover the stress of Ethereum and similar L1, with absurd transaction times and gas fees that not only destroy any profit on a transaction, but can actually result in a net loss.
While Ethereum is aware of these shortcomings and is working on their next iteration, there is simply no urgency to address these fundamental issues. This gaping hole has left a tremendous opportunity for chains like Avalanche, who have learned from Ethereum’s shortages with a unique consensus element that keeps the platform decentralized while also allowing it to scale as the platform grows. More specifically, Avalanche offers cheap, fast and secure transactions that are DeFi’s lifeblood.
BENQI has made a name for itself in this environment through key elements such as harnessing unused value in the fledgling DeFi, developing liquid assets and staking, and focusing on cross-chain opportunities.
We spoke to JD about what led to the creation of BENQI, how it fits into the Avalanche and DeFi ecosystem, and where the market will develop from here.
BENQI took over $ 2 billion on board in just days of its launch. What contributed to this rapid success?
There were some catalysts that led to this. The first was the immediate need for a credit and credit market within the Avalanche ecosystem. Prior to the introduction of BENQI, there were no credit markets for avalanche, which is a fundamental component of DeFi. The introduction of BENQI gave users the opportunity to unlock capital, especially blue chip assets that are on Avalanche. A few weeks before BENQI’s launch, the new Avalanche Bridge was also launched, which helped bridge substantial liquidity from Ethereum. The seamless and economical cross-chain transfers made it really easy for users to bridge assets from Ethereum to Avalanche.
The story goes on
How is BENQI different from other credit protocols?
First, BENQI is a native avalanche lending protocol that prioritizes security and security. As a native Avalanche protocol, the team mainly focuses on the Avalanche ecosystem and has extensive coverage from security partners such as Halborn, Gauntlet Network and ImmuneFi. All adjustments to the asset parameters at BENQI must undergo rigorous risk assessments and analyzes before being considered. This also includes asset listings in the log itself.
What makes Avalanche so unique to DeFi?
Avalanche has a very unique consensus model that offers strong scaling capabilities without sacrificing decentralization. This offers extremely high throughput and fast transaction finality, which makes navigation in DeFi extremely fast and inexpensive.
What is liquid staking and why is it important?
Liquid staking enables staked assets to be liquid. This is done by tokenizing the capital employed that is to be used in DeFi applications.
Currently, users are essentially locking their AVAX token on the Avalanche P-Chain when they use it to be able to earn the staking rewards offered by the Validator nodes. This tied-up capital will be released with the upcoming liquid staking solution from BENQI.
By staking assets on the BENQI Liquid Staking platform, users can freely use them within DeFi, e.g. This allows for greater capital efficiency within the Avalanche C-Chain network as more AVAX is deployed within DeFi.
One of the things that really made DeFi succeed is the ability to get the assets you hold up and running by lending them instead of just sitting in your portfolio. Do you think NFTs will offer similar functionality? The ability to borrow NFTs and earn APY instead of just spending them in your wallet?
Yes, we will definitely see similar functionality with NFTs. However, there would be a slight difference in the mechanisms of collateralisation for borrowing against them. It will likely include the floor price of an NFT collection, which is usually a more predictable way of measuring NFT prices and their movements.
It’s already happening on Ethereum, where the NFT community is much more mature and “blue chip NFTs” like CryptoPunks and BAYC are liquid enough.
The Avalanche NFT community is still in its infancy right now, but it shouldn’t be long before we see how it develops. NFT projects starting Avalanche have generated a lot of buzz in the community, and the release of NFT platforms like Kalao should benefit the growth of NFTs on Avalanche.
What do you see as the next big development at DeFi?
The next big development at DeFi would be cross-chain solutions. The current environment is a multi-chain environment with a lot of fluidity. The days of Ethereum being the only chain for DeFi are over and it will be interesting to see how protocols can safely and securely leverage cross-chain liquidity.
We see many bridges being built to support this and with tons of capital on Ethereum there are many incentives to develop solutions that take advantage of the liquidity on Ethereum while enjoying the speed of faster, scalable chains like Avalanche.
What use cases do you think we will see for NFTs that will reach their full potential?
NFT stands for Non-Fungible Tokens. Since it is not fungible, the token itself is a unique and non-exchangeable form of data.
This quality alone is groundbreaking for fields that involve property and immutability. We could see event tickets being issued as NFTs with a transaction fee added so the issuer still benefits from scalpers trying to resell those tickets.
We could see certificates of ownership being issued as NFTs, and since all of these are tokens, they could be backed up by DeFi applications like BENQI on the blockchain.
Tokenizing assets as NFTs offers many options that minimize reliance on intermediaries and fear of counterfeiting.
What do you think of the regulation in the crypto space? And how do you see the effects on BENQI?
Regulation can be good when it is designed to be beneficial for everyone. At the end of the day, the crypto room is still in the making. We hear of people losing money to exploits or simply sending assets to the wrong addresses, and many of these incidents are irreversible due to the nature of the blockchain. Since many of these regulators are not crypto-native, it can be difficult for them to understand why this is happening, and it is the community’s job to educate not just regulators but the larger non-crypto community. Regulation is something that BENQI has to face and the founding team is open to discussion and dialogue with regulators to see how both sides can work together.
What is the biggest factor preventing institutions from participating in the high APYs available in DeFi (compared to traditional markets)?
The high APYs within DeFi are not insured, so loss of funds through exploits or smart contracts can be a bigger problem than the potential profit that DeFi institutions can make.
Additionally, in most jurisdictions, it is illegal for most institutions to participate in DeFi.
If institutions come, will it harm or help the “average” DeFi investor and why?
It will definitely help the “average” DeFi investor. The arrival of institutions signals the validation of the system and therefore interest in DeFi alone would be much greater. This, in turn, will open the floodgates for lots of capital and the existing DeFi investor would be well positioned to capitalize on it.
It seems that we still hear too often about hacks & smart contract vulnerabilities these days. Do you think we are at a point where the average investor doesn’t have to worry about their money being lost due to a vulnerability in code or human risk? If not, will we ever and when will you see this?
I think most investors should still exercise some caution in deciding whether to invest their money in a new protocol. There are, of course, more seasoned DeFi investors who are aware of the risks involved, but I think there should be more education about good security practices and the risks associated with smart contracts.
What’s next for BENQI?
BENQI is currently working on a liquid staking solution which is currently undergoing audits. Since the liquid staking solution would be a novel technology, we ensure that the security audits and penetration tests are rigorously carried out before they are made available to the public. In addition, a security module will be implemented in the current BENQI credit markets app. Users can contribute to the security of the log by staking their QI token and receive QI incentives in return by buying back the log revenue from the QI token. And while all of these things are being worked on, there are continual improvements to the app on the UI front and lots of exciting integrations and business development work behind the scenes.
Only time will tell how these trends will play out as we approach 2022; This industry is moving at lightning speed, and anytime a new algorithm or technology could cause the entire market to shift focus. However, we’ve seen strong signs that DeFi won’t go away, and the world is poised to move further away from CeFi and explore both models for the foreseeable future. Some elements like fast, cheap and secure transactions will always be desirable, as will cross-chain functionality. As BENQI, Avalanche and others continue to develop these platforms, we can expect the DeFi experience to become more and more accessible to the masses as they see mass adoption on these proven DeFi platforms.