Overview
Benqi is the largest native lending and borrowing protocol on Avalanche, launched in August 2021 during the Avalanche Rush liquidity mining program. The protocol operates a Compound-style money market (Benqi Lending) alongside a liquid staking product (sAVAX) that allows users to stake AVAX while retaining liquidity. Together, these products position Benqi as foundational DeFi infrastructure on Avalanche.
The protocol gained rapid traction during Avalanche's growth phase in 2021-2022, benefiting from ecosystem incentives and being one of the first major lending deployments on the chain. Benqi's liquid staking product (sAVAX) has become the dominant AVAX liquid staking token, creating a flywheel where sAVAX is used as collateral on the lending platform.
While Benqi remains the dominant Avalanche-native lending protocol, it faces increasing competition from Aave V3's Avalanche deployment. The protocol's relatively smaller team and Avalanche-centric focus limit its growth ceiling compared to multichain competitors, but its deep integration with the AVAX ecosystem provides a defensible niche.
Smart Contracts
Architecture
Benqi Lending uses a Compound V2-style architecture with qiTokens (interest-bearing receipt tokens) representing user deposits. The liquid staking module is a separate contract set handling AVAX delegation to validators and sAVAX minting. The two products are integrated but architecturally independent.
Code Quality
Benqi's lending contracts are based on the widely-used Compound V2 codebase, providing a well-understood foundation. The liquid staking contracts are more novel and specific to Avalanche's staking mechanism. All contracts are open source. Code quality is reasonable but reflects the protocol's origin as a rapid ecosystem deployment rather than ground-up engineering.
Upgradeability
Benqi uses proxy patterns with governance-controlled upgrades. The protocol's multisig controls upgrade capability, with governance proposals requiring community review. The upgrade process is less battle-tested than Ethereum-native protocols given Avalanche's younger DeFi ecosystem.
Security
Audit History
Benqi has been audited by Halborn, with reviews covering both the lending and liquid staking modules. The protocol has undergone multiple security reviews as new features were added. Audit coverage is adequate but less extensive than top-tier Ethereum protocols like Aave or Compound.
Oracle Design
Benqi uses Chainlink price feeds for asset pricing on Avalanche. The protocol implements standard price feed validation with staleness checks. For sAVAX pricing, the protocol uses an exchange rate oracle reflecting the AVAX/sAVAX ratio. Oracle infrastructure on Avalanche is generally robust but has less redundancy than Ethereum.
Liquidation Engine
Benqi employs a standard Compound-style liquidation mechanism with external liquidators receiving a liquidation incentive (typically 8-10%). The Avalanche network's sub-second finality and low gas costs facilitate efficient liquidations. The liquidation bot ecosystem on Avalanche is smaller than Ethereum's but adequate for current protocol size.
Track Record
Benqi has not experienced any major smart contract exploits since launch. The protocol weathered market downturns in 2022 without systemic failures. However, as a mid-sized protocol on a single chain, it has faced less adversarial pressure-testing than larger Ethereum-based protocols.
Risk Management
Asset Listing
Benqi supports a focused set of assets primarily aligned with the Avalanche ecosystem: AVAX, sAVAX, WETH, WBTC, major stablecoins, and select Avalanche-native tokens. New listings go through governance proposals with basic risk assessment. The conservative listing approach suits the protocol's scale.
Risk Parameters
Risk parameters include collateral factors (typically 50-80%), liquidation incentives, reserve factors, and supply/borrow caps. Parameters are set based on asset liquidity and volatility, with Avalanche-specific considerations like validator delegation risks for sAVAX.
Isolation Modes
Benqi lacks formal isolation modes seen in newer protocols like Aave V3. All assets share the same lending pool, meaning a failure in one asset could theoretically affect others. This is a notable gap compared to modern lending protocol designs and represents a risk for users.
Adoption
TVL & Usage
Benqi holds approximately $800M-$1.5B in combined TVL across lending and liquid staking. sAVAX liquid staking represents a significant portion of total TVL. The lending protocol maintains moderate utilization rates, with AVAX and stablecoin markets seeing the most activity.
Multichain Presence
Benqi is exclusively deployed on Avalanche C-Chain. This single-chain focus provides deep Avalanche integration but limits the protocol's total addressable market. There are no announced plans for multichain expansion, tying Benqi's growth entirely to Avalanche's ecosystem trajectory.
Integrations
Benqi is integrated with major Avalanche DeFi protocols including Trader Joe, Pangolin, Yield Yak, and various aggregators. sAVAX is accepted as collateral on Aave Avalanche and other protocols, extending Benqi's reach beyond its own platform. The protocol serves as essential Avalanche infrastructure.
Tokenomics
Token Overview
QI is the governance and utility token with a total supply of 7.2 billion. Distribution includes ecosystem incentives (50%), team (15%), investors (15%), and foundation (20%). QI emissions incentivize lending and borrowing activity on the platform. The large supply and ongoing emissions create dilution pressure.
Revenue Model
Benqi earns revenue through reserve factors on lending interest and fees from the liquid staking product. sAVAX generates revenue through AVAX staking rewards, with Benqi retaining a commission. The dual revenue model (lending + staking) provides more diversified income than pure lending protocols.
Governance
QI token holders can vote on governance proposals including asset listings, risk parameters, and protocol upgrades. Governance participation has been modest, typical of mid-tier DeFi protocols. The Benqi team retains significant influence over protocol direction and development.
Risk Factors
- Avalanche Concentration: Benqi's exclusive Avalanche deployment ties its fate entirely to the Avalanche ecosystem's growth and health. A decline in AVAX activity directly impacts Benqi.
- Competition from Aave: Aave V3 on Avalanche offers more sophisticated risk management features and brand trust, putting competitive pressure on Benqi's lending market share.
- No Isolation Modes: The lack of formal asset isolation means all assets share risk in the lending pool, a significant design gap compared to modern lending protocols.
- QI Token Inflation: Large token supply and ongoing emissions create persistent sell pressure on QI, potentially undermining governance participation and token value.
- Limited Audit Depth: While audited, Benqi's audit coverage is less extensive than top-tier protocols, and the protocol has had less adversarial battle-testing due to its smaller size.
- Liquid Staking Risk: The sAVAX product introduces validator delegation risks, potential slashing exposure, and smart contract risk in the staking module that adds to the overall risk profile.
Conclusion
Benqi has carved out a strong position as Avalanche's dominant native lending protocol, combining traditional money market functionality with a successful liquid staking product. The sAVAX flywheel — where users stake AVAX, receive sAVAX, and use it as lending collateral — creates a compelling value proposition unique to the Avalanche ecosystem.
However, Benqi's single-chain concentration and lack of modern risk management features (like isolation modes) limit its competitiveness against multichain protocols like Aave. The QI tokenomics need improvement to reduce dilution and increase governance participation. The protocol's growth ceiling is fundamentally tied to Avalanche's ecosystem expansion.
Benqi is a solid choice for Avalanche-native users seeking lending and staking services, but users should be aware of its limitations relative to larger, more diversified lending protocols. Its best path forward likely involves deepening Avalanche integration and staking innovation rather than attempting to compete head-to-head with multichain leaders.