Avalanche is a proof-of-stake network consisting of three distinct chains for different functions:
The X-Chain (The Exchange chain)
The P-chain (The Platform Chain)
The C-Chain (The Contract-Chain)
Staking or delegating on Avalanche requires using the P-Chain, which serves a dual purpose. The P-Chain is also used to validate the network, and for stakers to delegate to validators to secure the network and earn rewards. Avalanche and most other PoS networks require users' stake to be locked up for a period of time. However, when it comes to delegation, Avalanche has a unique approach to lockups.
Avalanche allows delegators and validators to choose a required interval for delegation: the user can delegate for a minimum of two weeks and up to a maximum of one year. Staking for longer time intervals increases the rewards, which incentivizes users to stake for longer and validators to validate for longer.
During this period in which the stake is locked (often called a delegation period, staking period or lockup period), AVAX tokens become illiquid and inaccessible until the staking period/lockup period ends.
Liquid staking was created to address the problem of assets being illiquid due to lockup and unbonding periods which stifles opportunities and capital efficiency. It solves this inefficiency problem by taking an existing digital asset, such as AVAX, and tokenizing it so that a staked or bonded token can remain liquid to the user whilst still securing the underlying network protocol and earning rewards.
Liquid staking often allows users to bypass minimum staking thresholds and allows token holders to gain rewards through the use of DeFi protocols. These tokenized issuances effectively function as a receipt of ownership and can be swapped back for the initially staked token. Through the use of tokenized issuances, illiquid tokens are made liquid.
BENQI is a DeFi protocol on Avalanche that also serves as Avalanche’s premier liquid staking solution. BENQI is split into two sub-protocols: BENQI Liquidity Market (BLM) and BENQI Liquid Staking (BLS).
BENQI’s BLM protocol allows the lending and borrowing of assets on BENQI, users can deposit their tokens into BENQI’s smart contracts and generate additional yield on their tokens through lending. Users can also borrow assets by sufficiently collateralizing their positions via smart contract deposit.
BENQI’s Liquid Staking (BLS) module allows users to stake AVAX and receive BENQI’s own liquid staking token called sAVAX. sAVAX is a pegged and redeemable tokenized derivative which liquefies AVAX stakers delegation position. sAVAX has a plethora of benefits, including being compatible within multiple DeFi protocols, including Aave — thus increasing the scope of its utility. sAVAX can be used in tandem BENQI’s own BLM module generating higher returns for miniscule effort.
Liquid staking on BENQI confers innumerable benefits and provides many different options for users with differing levels of risk tolerance and risk appetites. For example, users can earn up to 18% using BENQI, approximately 7.5% by staking AVAX and roughly 11% lending sAVAX through BENQI’s own BLM module. Whereas users just staking AVAX alone would earn between 7.5% and 7.62% annually in a two week lock period and be required to keep locking up their AVAX to get this APY. Reward maximization strategies provided by liquid staking hubs such as BENQI can at least nearly double the returns when used in such ways. sAVAX is notably already integrated into popular DeFi protocols such Aave, Avalanche’s Trader Joe and Platypus.
Currently, there are 4,021,826 AVAX staked and BENQI has a market cap of sAVAX $85,474,006. BENQI Liquid Staking (BLS) module also has a multitude of other benefits for users:
Alluvial, an enterprise-grade liquid staking standard, recently announced its collaboration with Rome Blockchain Labs and BENQI.
Alluvial is building a new protocol to address the need for KYC/AML checks for institutions, web3 native enterprises, and other regulated entities.This non-custodial solution can provide more flexibility to enterprises by allowing them to take advantage of a truly crypto-native and global liquid staking solution. Furthermore, the liquid staking product will be governed in a decentralized fashion via the community and other diverse sets of ecosystem participants.
This collaboration offers institutions a secure AVAX staking option while participating in the consensus mechanism of the Avalanche platform and enabling more flexibility and liquidity for network participants.
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