Updates to the BENQI Liquidity Mining Initiatives
Liquidity mining has seen many forms over the recent months and years, primarily due to the competitive nature of the DeFi space. With multiple networks working to attract leading development teams, committed investors, DeFi participants and by extension, increased total value locked, many forms of liquidity mining have been explored and deployed. BENQI has the incredible luxury of leaning into some of the best venture partners in the space, as well as the benefit of a certain degree of hindsight. We have spent an extensive amount of time considering all available options to design the optimal liquidity mining strategies for deployment. We are grateful for the countless hours of analysis and collaboration from industry leading experts that helped fine-tune the designs.
After careful consideration, we came back to the core goal of BENQI, as an staple in the DeFi ecosystem — Security, Stability, Data — to help identify the starting point for our modelling. As a consequence of the above analyses, we have concluded that there are a few critical metrics that will drive the liquidity mining initiatives as BENQI scales.
Protocol Liquidity, Utilization and Locked Value
Aside from the general vanity metric of locked value being as large as possible (which is of course still an area of interest), the long term focus of a lending protocol is to be capital efficient, secure, and predictable for its users and stakeholders. Liquidity mining, if used correctly, can be an incredible tool to assist in balancing the operative components of the protocol. This drives the next point of consideration — Protocol Profitability.
Protocol Profitability
Much work has been done as of late to assess the efficiency and impact of liquidity mining on short term revenues for the protocols. The empirical evidence gathered suggests that there needs to be a balance between the growth and profitability of a protocol. It is clear that there needs to be an emphasis on the monitoring and assessment of available data to dynamically adjust for the most optimal liquidity mining initiatives. The long-term opportunity for DeFi protocols, especially lending protocols, requires a concerted focus on said data and analytics as well as generally accepted business practices of operations and management to remain successful. BENQI intends to build the protocol with a keen eye on business management and data analytics for the benefit of all participants.
Competitive Landscape
To remain competitive in all market environments, including initiatives from all major networks, we believe that protocols need to remain vigilant and fluid on how to offer liquidity mining rewards. As a whole, BENQI is focused on supporting and becoming a foundational piece of the Avalanche ecosystem. It is our goal to maintain an attractive, yet sustainable environment for our community and users to enjoy the benefits of DeFi on Avalanche. We also feel that it is our obligation to our stakeholders to remain prepared for all known, and unknown, future environments.
Inflation and Price Impacts
As gestured earlier, Liquidity Mining is a tool that will be employed to achieve BENQI’s goals. However, BENQI is not a farming protocol, but rather a lending protocol first. BENQI is committed to the long-term focus and efficacy of the protocol and as such must also remain vigilant in planning the use of a significant amount of the token supply. The goal is to create an environment where desired activities on the protocol can be properly incentivized through targeted and competitive alpha, while being aware of the subsequent impacts on the inflation of supply and its impact on our stakeholders. It is imperative to collate specific, quantifiable, and relevant data to guide decision-making on the path to achieving that.
Governability
As BENQI will transition to a DAO in due course, the founding team is committed to designing the protocol in such fashion that all major activities are governable. As such, we want to ensure that no particular decisions are so inscribed in the code and policies that governance cannot adjust course as the protocol matures. We always intend to create an environment where decisions can be made by governance in an objective, data driven manner and our policies and initiatives shall be developed and deployed with such flexibility in mind.
The Path Forward For BENQI — Liquidity and Community Incentives
In a change to the previous liquidity mining program, which was planned to be fully released over 5 years, the optimized program will be more targeted, and have a broader mandate of being used for additional community incentives. It is important to note that 45% of supply will be fully distributed to the community, as planned previously. The change from 50% in liquidity mining allows the tokens to be readied for exchange partners that we will be collaborating with.
As a result of the above considerations, the most appropriate design for the initial deployment is to conduct the liquidity mining initiatives in tranches of 90 days. Data from the previous period can then be collected and analyzed to determine the optimal parameters for the subsequent schedule. The team has strong commitments from venture partners — some of the most experienced DeFi analysts in the space — to help design initiatives during each 90 day roll-over period. This process will, of course, be governed by the DAO when governance takes effect. We hope this process not only allows for maximal community participation but also enables a flourishing marketplace of ideas about how best to bootstrap growth for the platform. A rigid, predetermined liquidity mining schedule would accomplish none of this and would simply lock us into a path that, a few months down the line, may no longer be the most optimal.
With 45% of the entire token supply fully committed to liquidity mining and community initiatives, the team has a profound responsibility to manage this allocation in the most effective way possible, with the long-term success of the protocol being the driving force. With security, stability, and data as the guiding principles, we are humbled and honored to be entrusted with this initial responsibility.
A special thanks to our community for providing vital feedback to our decision on the development of our liquidity mining program with the above structure and strategy to its management.
We are elated to soon share with you the full details of our initial liquidity mining initiatives, and how our data and analytics infrastructure will aid in the data driven decisions within BENQI. A new dawn of DeFi is emerging on the Avalanche network, and we are more than excited to be a part of it.
About BENQI
Built on Avalanche’s highly scalable network, BENQI’s vision of bridging decentralized finance (DeFi) and institutional networks starts by launching BENQI on the Avalanche C-Chain. Through BENQI, Avalanche users will be able to earn interest on their assets, obtain credit through over-collateralized loans and earn QI governance tokens as rewards for providing liquidity on the protocol and Pangolin. For more information about BENQI, please visit: benqi.fi
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