Decentralized Finance (DeFi) is still nascent despite the rapid growth over the last couple of years. It has a long runway for growth ahead. However, congestion problems on Ethereum and the subsequent high network fees have forced millions of DeFi-curious people to stay away from decentralized liquidity markets. Avalanche-based algorithmic liquidity market BENQi is addressing these hurdles to fully democratize DeFi.
The Benqi protocol will allow people to:
- Instantly supply or withdraw liquidity from the market
- Instantly borrow assets from the market using the assets they supply as a supply as a collateral
- Get live and transparent interest rates depending on the supply and demand of an asset
While other lending and borrowing protocols use a block-based approach to calculate interest rates, Benqi uses a time-based approach to ensure that users get the most accurate rates.
Fourteen VC firms back Benqi
Benqi has raised $6 million in a strategic funding round from marquee investors. They include Ascensive Assets, Dragonfly Capital, Arrington XRP Capital, Mechanism Capital, TRGC, Woodstock Fund, Spartan Group, Morningstar Ventures, Ava Labs, GBV Capital, MarketAcross, Moon Inc, Genblock Capital, Rarestone Capital and Skynet Trading.
Liquidity markets allow individuals and institutions to earn interest on their idle assets by lending it to those in need. Borrowers get to use the assets to scale their businesses or meet an expense.
Powerful, influential, and rent-seeking institutions act as intermediaries between borrowers and lenders in the traditional financial markets.
DeFi liquidity markets have replaced the intermediaries with smart contracts to enable people to lend and borrow their on-chain assets. Smart contracts determine the parameters of peer-to-peer conditional transactions, including the interest rates.
Avalanche: A massive upgrade over the Ethereum network
DeFi liquidity protocols such as AAVE, CREAM and Compound already allow users to borrow and lend assets. However, since they are based on Ethereum they suffer from congestion and high transaction fees.
The Benqi protocol is built on Avalanche rather than Ethereum to truly democratize access to DeFi. While Ethereum handles 14 transactions per second, Avalanche is capable of processing more than 4,500.
Avalanche takes less than a second to complete a transaction. That’s a big relief for people frustrated with up to six minutes taken by Ethereum to process a transaction.
The average transaction fee on Ethereum ranges from $80 to $300 depending on the network usage. It makes it nearly impossible for most users to profit off the interest rates they earn.
The fee on Benqi is just $0.70 per transaction. As a result, users can easily move their assets to and from the Benqi protocol without worrying about speed, fees, and getting front-runned by bots.
A few other reasons Benqi founders chose the open-source Avalanche over Ethereum:
- Avalanche is highly decentralized with more than 900 validator nodes running.
- Compatible with popular plugin wallets like Metamask
- It is CPU-bound and boasts high throughput. You don’t have to buy specialized hardware to run Avalanche. The computer you already own is good enough
- Enables frictionless transactions and is highly scalable
Users frustrated with congestion and high fees on the Ethereum network can port their holdings to Avalanche through the Avalanche-Ethereum bridge (AEB). It will encourage DeFi-curious users to participate in the non-traditional, open financial movement.
Benqi will be offering Liquidity Mining incentives on its protocol to boost participation and ensure that there is plenty of liquidity at all times.
The road ahead
Benqi aims to become a cross-chain DeFi hub. It is leveraging the key industry leaders to navigate the initial phase and cross-chain integrations with other projects to help accelerate DeFi activity on Avalanche.
In the future, the company plans to introduce new features including flash loans, new assets through government voting, and wallet credit scoring to unlock additional features.
Benqi plans to launch Avalanche subnets similar to Compound Cash and Polkadot Parachains. But its subnets won’t suffer from the limited number of Parachain slots or the constraints of Virtual Machine (VM).
The Benqi subnets will allow institutions to build regulatory compliant networks without being subjected to the Virtual Machine (VM) constraints.
Benqi protocol will launch on the Avalanche C-Chain, which is compatible with an Ethereum Virtual Machine (EVM) and works with the Metatask wallet.
New users will be able to send the native token AVAX from Centralized Exchanges to the Avalanche X-Chain and then swap it on to the C-Chain to send it to their C-Chain Metamask wallet. On Pangolin exchange, users will be able to swap AVAX for other popular cryptocurrencies such as wBTC, ETH, DAI, LINK, and USDT.
It is currently working with many leading exchanges to build Avalanche C-chain rails for Benqi’s proprietary QI token. The goal is to minimize friction of transferring assets from Centralized Exchanges to the Metamask wallet. Users won’t have to use the Ethereum bridge, which requires interaction with the Ethereum smart contracts. It will allow new users to avoid the expensive Ethereum to Avalanche bridge (AEB) to quickly and cheaply transfer their crypto assets to the Avalanche C-Chain.
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