Welcome to this post, where we are going to see how benqi works, and those aspects that you should know about this protocol.
Benqi is a platform built on the avalanche network, and offers loans by providing guarantees or collateral within the protocol. It is very similar to other well-known platforms such as AAVE or Geist Finance.
Let’s take a look at a guide on how you can use it and take advantage of the option to borrow with your cryptocurrencies and leverage yourself with this platform.
What is Benqi
BENQI is a non-custodial liquidity market protocol built on top of Avalanche. The protocol allows users to effortlessly lend, borrow and earn interest on their digital assets. Depositors providing liquidity to the protocol can earn passive income, while borrowers can borrow on an over-collateralized basis.
The platform has a simple interface, and is really easy to use. Plus it only focuses on lending & borrowing as a platform. With over $300 billion in their protocol, and offering rewards on AVAX for people who use their platform. Since it is part of the incentive program that avalanche labs launched, and benqi was one of the platforms selected to receive these rewards.
Therefore, you can borrow at a very low interest rate, or even pay no interest, if the rewards on AVAX are higher than the interest you have to pay for borrowing.
The first thing we must do is to connect our wallet and have the Avalanche network configured to be able to access. Once inside, we will go to markets.
This is where you will be able to deposit your tokens and borrow from this panel. But first, I recommend you to go to overview to see more information about the annual % you can receive, and which cryptocurrencies you can deposit and borrow in Benqi.
If we go to overview, you will see the different tokens you can use in assets. In supply, you will see all the information if you deposit that token, and in borrow, the information if you borrow.
The most relevant thing is to see the total apy, which is the annual return you will receive for depositing your tokens there. And the same, in the case of borrow, is the percentage you will have to pay for borrowing. If you hover over the number, you will see the percentage breakdown, where a part of the total percentage, are incentives from the avalanche program and the platform itself, benqi, where you will receive qi and avax. The same goes for borrowing, where you will have to pay interest, but you will also receive rewards for using the protocol. This makes the total % you pay, much lower, and you can even see some token like LINK.e, where you are going to get more than what you will have to pay. So you will actually be getting paid for borrowing that token.
Although it’s important to keep in mind that these incentives are going to diminish over time, and they’re going to disappear. So it is possible that in a month or more, the % will be different, as there are no longer these incentives.
Once we have reviewed the % and which tokens you can deposit in benqi, we go back to markets. Both to just deposit, or to borrow, you must first deposit cryptocurrencies as collateral, and this is what we are going to see now.
In supply, the first thing we will indicate is the token, on the right it comes by default AVAX, but you can change it for another token.
We indicate the amount, you can press max to indicate all, but remember to leave a part for commissions if you deposit AVAX. With the amount indicated, the only thing left to do is to click on deposit. Confirm in your wallet and that’s it. In this way, you will already be getting the annual % that you have been able to see in supply of that token.
To borrow, we must first enable the option to use as collateral. You can see it in supplied, just enable this option. In this way, the deposited tokens will serve as collateral for borrowing.
Now, instead of supply, let’s borrow, and the operation is the same. Indicate the token you want to borrow, the amount, taking into account the liquidation risk, and click on borrow. Confirm in your wallet and you are done.
Note that each asset has different limits for borrowing, and it is recommended not to borrow the maximum, as it is very easy that any market fluctuation, your position will be liquidated.
You can find an indicator, called health factor, with different colors that indicates the risk of your position being liquidated. With green, orange and red color. If it reaches 1.0, your position will be liquidated. +2.0 you will see the health factor in green, +1.1 in orange, and -1.1 in red. In case it is in red, return the loan or place more collateral if you have not been liquidated.
Finally, in rewards you will find the rewards for using the protcolo. As mentioned above, in addition to the annual % you earn, a part of the total APY, are the rewards you receive for using benqi, either by depositing or borrowing.
These rewards can be claimed at any time in rewards. Here, you will find two types of rewards, with the platform’s own token, QI, and rewards with the native token of the AVAX network. You can simply see how your rewards are accumulating here, click on claim, confirm in your wallet and you will have them available.
Liquid Staking on Benqi (sAVAX)
Now that we have seen how Benqi’s main function works with their lending platform, let’s take a look at the new feature they have added and it is very interesting, the Avalanche liquid staking.
If you click on liquid staking it will take you to the panel with all the information, which is separated from the benqi page with its loan marketplace. Therefore, you will have to reconnect your wallet on the top right.
The functioning of Benqi’s liquid stkaing is very similar to what we have seen with other cryptocurrencies on platforms like Lido. Even so, we are going to cover all the information you need to know if you have never heard of liquid staking and all those aspects you should know.
In Benqi we will deposit our AVAX tokens, and we will receive sAVAX in our wallet. sAVAX is the token that refers to the staked AVAX token. But instead of locking your tokens in a pool or platform, here you receive a token that can be used, and exchanged on other DEFI platforms as we will see below. At the same time you receive the annual % for staking with your AVAX.
This is where the term liquid staking comes from, since you have a liquid token that you can exchange or use at any time. Unlike traditional staking where you block or deposit your tokens in a platform and you can’t do anything else with them.
In APR you can see the annual % they are giving, which is currently 7.20% at the moment. The way you receive this annual % is through the sAVAX token which appreciates in value with respect to AVAX. Unlike traditional staking where you receive tokens every day or every so often for staking on it. The platform that does liquid staking, in this case Benqi, uses the rewards to appreciate in value the sAVAX token with respect to AVAX and thus in the same way receive the rewards. But instead of receiving tokens, when you want to exchange your sAVAX for AVAX you will receive a larger amount of AVAX.
If it sounds confusing, let’s look at it with a very simple example. Let’s assume that the annual % stays at 7% for one year. By depositing 100 AVAX we receive let’s assume another 100 sAVAX. We keep the 100 sAVAX in our wallet and after one year we go back to Benqi to exchange our sAVAX for AVAX. Now, we will receive 107 AVAX, which is the 7% APR of the liquid staking. So, instead of receiving the rewards every little while, when exchanging the sAVAX, we will receive more AVAX with the interest it has generated.
Another aspect that is important to highlight, is that to change from sAVAX to AVAX we will have to wait 15 days, as indicated in the unstaking cooldown period and 2 days to claim the AVAX in question. So that will be a total of 17 days of waiting. If this sounds too much, you can always go to a decentralized exchange like trader joe and exchange your sAVAX for AVAX for a very similar price, although you will not receive as much as if you wait the 17 days in question. You usually lose about 1-2% by trading on a DEX as a joe trader, rather than waiting the 17 day wait. But it can be worth it if you don’t want to wait that period of time.
Lastly, the big advantage that we have discussed and using liquid staking has is the use you can make of it. If we go to the DEFI tab in the menu above, you can see all the platforms where you can use your sAVAX, and generate a higher annual %. Either using anchor protocol, creating a sAVAX-AVAX LP Token and farming on trader joe or pangolin.
All of these options allow you to increase that 7.20% annual % to a higher annual %, using liquid staking on other platforms. It is a matter of looking at the different opportunities and which ones can be more profitable. One of the best options and one that usually gives a good annual % is to create a sAVAX-AVAX LP Token and do some DEX farming. Although it is necessary to consider that 50% of that LP will not be generating the 7.20% of liquid staking, being AVAX. Even so, there are very interesting annual % in these cases.
To do staking, you just have to indicate the amount of Avalanche you want to deposit, click on stake and confirm the transaction in your wallet.
In the same way, going to unstake you will be able to change your liquid staking for AVAX again, waiting the time we have mentioned before.
I recommend that if you are looking for Avalanche staking, this is the best option currently available with the liquid staking and the different opportunities it has. We have already seen in other networks how well this type of liquid staking has worked and it is one of the parts that was missing in Avalanche.
I hope it has helped you to know in more detail how Benqi and Avalanche’s liquid staking works. Remember that if you don’t have an account with binance, you can create one just below.