How Does Benqi Work?
The largest lending and liquid staking platform on the Avalanche blockchain, where you can earn interest on deposits or stake AVAX for the sAVAX token. It manages $300M in deposits with over 23 million AVAX staked. Its B grade reflects a mature Compound-fork design with no major exploits, offset by circular liquidation risks from using sAVAX as collateral in its own lending markets.
TVL
$113M
Sector
Lending
Risk Grade
B-
Value Grade
B-
Core Mechanisms
Lending/Pool-Based
Compound-fork lending markets on Avalanche with supply/borrow pools
Standard Compound-style lending protocol adapted for Avalanche. Established architecture with well-understood risk properties. Audited and open-source.
Liquid-Staking/Receipt-Token
sAVAX liquid staking token for staked AVAX with auto-compounding rewards
Users stake AVAX and receive sAVAX representing their staked position plus accrued rewards. 10% fee on staking rewards. Over 23M AVAX staked.
Lending/Collateral-LST
sAVAX accepted as collateral in lending markets for leveraged staking loops
sAVAX can be deposited as collateral to borrow AVAX, which can be restaked for leveraged yield. Common pattern but amplifies de-peg risk.
Oracle/Chainlink
Chainlink price feeds for Avalanche-native asset pricing
Standard Chainlink oracle integration for price feeds. Avalanche-specific feed availability and update frequency are operational dependencies.
Liquidation/Fixed-Spread
Fixed liquidation incentive with close factor for partial liquidations
Standard Compound-style liquidation mechanism with fixed incentive spread. Liquidator bots compete for profitable liquidation opportunities.
Governance/DAO
QI token governance with veQI vote-escrow for boosted rewards
veToken model where locking QI grants governance power and boosted lending/staking rewards. Token is fully unlocked as of 2025.
How the Pieces Interact
sAVAX de-peg during AVAX market stress triggers liquidations of sAVAX-collateralized positions, forcing sAVAX sales that deepen the de-peg in a reflexive spiral.
AVAX-denominated lending markets concentrate risk on a single L1 ecosystem. An Avalanche network outage or consensus failure would simultaneously freeze all lending and staking operations.
Oracle pricing of sAVAX during rapid de-peg events may lag market reality, allowing under-collateralized borrowing or delayed liquidations.
Recursive sAVAX/AVAX leverage loops amplify liquidation cascades as each liquidation forces more sAVAX selling, creating waterfall liquidation patterns.
Concentrated veQI holdings could direct reward emissions to boost specific markets artificially, attracting deposits that flee when incentives end.
What Could Go Wrong
- sAVAX liquid staking introduces de-peg risk where sAVAX trades at discount to AVAX during stress events
- Heavy Avalanche ecosystem dependency means QI token value and TVL are tightly coupled to AVAX performance
- sAVAX used as collateral in lending markets creates circular liquidation risk during AVAX drawdowns
sAVAX De-peg Liquidation Spiral
TailTrigger: AVAX price drops 40%+ within 48 hours while sAVAX trades at >5% discount to AVAX due to redemption queue saturation
- 1.AVAX flash crash triggers sAVAX de-peg as holders rush to unstake but face 14-day unbonding period — sAVAX secondary market price drops to 90-92% of AVAX parity
- 2.Chainlink oracle updates sAVAX/AVAX price, pushing leveraged sAVAX-collateralized positions below liquidation threshold — Benqi lending markets begin liquidating sAVAX collateral positions
- 3.Liquidators sell seized sAVAX on DEXs, deepening the de-peg to 15-20% — Recursive leverage loops (deposit sAVAX, borrow AVAX, restake) unwind simultaneously
- 4.Additional leveraged positions breach liquidation thresholds as sAVAX de-peg cascades — Waterfall liquidation pattern exhausts DEX liquidity for sAVAX
- 5.Benqi lending markets accumulate bad debt as sAVAX liquidation proceeds are insufficient to cover borrowed AVAX — Lending pool depositors face socialized losses; sAVAX confidence crisis deepens
Risk Profile at a Glance
Overall: B- (29/100)
Lower score = safer