BENQI, a pioneering algorithmic money market protocol on Avalanche, has recently integrated Chainlink Proof of Reserve and Automation to assist in securing BTC, ETH, DAI, USDC, and USDT cross-chain asset lending and borrowing. The utilization of a defense-in-depth strategy for the protection of cross-chain assets is now possible for BENQI as a result of the integration of these two tested Chainlink oracle services.
BENQI is a decentralized financial (DeFi) protocol that runs on Avalanche and gives users and developers exposure to capital-efficient DeFi products. It is composed of the BENQI Liquidity Market, which is a platform for lending and borrowing different cryptocurrencies, and BENQI Liquid Staking, which is a cutting-edge solution for liquid staking using AVAX.
The industry-standard Web3 services infrastructure, Chainlink, has facilitated trillions of dollars’ worth of transactions in the DeFi, insurance, gaming, NFTs, and other significant industries. As the top decentralized oracle network, Chainlink offers global businesses a single point of access to all blockchains and empowers developers to create feature-rich Web3 applications with easy access to off-chain computation and real-world data on any blockchain.
Alleviating Risks Associated with Wrapped Tokens
Although many people believe bridging assets are equal to the base asset that is locked on an external network, the truth is that bridged assets and base assets are two separate smart contracts that have distinct market profiles and different levels of security. The risk of under-collateralization is increased as a result of this. The “real” assets are always those that have been minted natively on Avalanche on BENQI.
The base asset in the case of cross-chain assets is an external asset, and the bridged asset’s level of reality is only as high as its claim to the base asset. Chainlink Proof of Reserve permits the trustworthy and timely monitoring of off-chain or cross-chain reserves through the utilization of automated verification that is founded on cryptographic truth.
As PoR currently helps underpin assets minted by the Avalanche Bridge, such as BTC.b, WETH.e, and DAI.e, amongst others, the BENQI Chainlink PoR integration has the goal of mitigating many of the risks associated with wrapped tokens (or bridged assets) in the BENQI protocol. Viewing the Chainlink PoR feed provides quick and simple access to the most recent information regarding their collateral balances.
Chainlink PoR offers a variety of benefits. For instance, smart contracts can get automated, on-chain verification of an asset’s collateralization if they keep an up-to-date reference contract. This eliminates the need to undertake manual audits. In addition, Chainlink is able to acquire data from premium data providers, who are financially motivated to deliver highly accurate and available data, thanks to the usage of configurable External Adapters.
Chainlink Proof of Reserve Feeds are decentralized at the level of the data source as well as the oracle node, which eliminates any central points of failure in the process of sourcing and delivering external data to BENQI. In addition, anybody can monitor the Chainlink Proof of Reserve Feeds in a manner that is very close to real-time, which enables any user to independently verify that assets have been collateralized.
Mitigating Potential Risks from a Cross-Chain Exploit
In the event that a bridge smart contract is breached, the wrapped assets that are listed in BENQI run the risk of becoming undercollateralized. It is mission-critical to take steps to mitigate this risk in order to provide consumers with secure functionality. While Chainlink Proof of Reserve helps provide the near real-time collateralization data, Chainlink Automation, a dependable smart contract automation tool, helps freeze the supplying and borrowing operations of BENQI in the event of unusual situations.
For example, if an abnormality is found in the reserves backing a wrapped asset through a Proof of Reserve feed, this might cause the supplying and borrowing functions of BENQI to become inoperable. When this occurs, Chainlink Automation will instantly pause and disable any impacted BENQI pools in an effort to help reduce the likelihood of arbitrage opportunities and any other potential risks that may result from a cross-chain exploit.
Dan Mgbor, Co-Founder of BENQI, said: “Cross-chain assets add value to the protocol by giving users a wider range of digital assets to transact with on BENQI, but they also come with unique risk and market profiles. The combination of Chainlink Proof of Reserve and Automation helps give us the ability to monitor cross-chain reserves in near real-time and build automatic protections in case of unexpected events. This elevated bar of security underpinned by Chainlink oracle services inspires user confidence in BENQI and gives everyone more peace of mind.”
Chainlink Automation is distinguished by a vast number of notable features. By way of illustration, Chainlink Automation uses Chainlink’s tried-and-true transaction manager in order to guarantee that transactions are recognized and confirmed in a timely manner even during times of significant network congestion.
Additionally, Chainlink Automation helps BENQI to remove expenditures associated with BENQI’s in-house automation infrastructure, lower the number of resources spent on DevOps, as well as boost both speed and efficiency. Chainlink Automation not only enables BENQI to scale more quickly, but it also frees it from the burdens of designing and maintaining the infrastructure required to automate reliably across different chains.
