BENQI — an algorithmic money market protocol on Avalanche — has integrated Chainlink Proof of Reserve and Automation in order “to help secure cross-chain asset lending and borrowing for BTC, ETH, DAI, USDC, and USDT.”
The combination of these two proven Chainlink oracle services enables them “to employ a defense-in-depth approach to cross-chain asset security.”
Though many assume bridged assets “are equivalent to the base asset locked on an external network, the reality is that they are distinct smart contracts with differing security and market profiles.”
This presents under-collateralization risk. Assets minted natively on Avalanche on BENQI are always the “real” asset. For cross-chain assets, the base asset “is external, and the bridged asset is only as real as its claim to the base asset.”
Chainlink Proof of Reserve “enables the reliable and timely monitoring of off-chain or cross-chain reserves using automated verification based on cryptographic truth.”
Their Chainlink PoR integration “aims to mitigate many of the risks associated with wrapped tokens (or bridged assets) in the BENQI protocol, as PoR currently helps underpin assets minted by the Avalanche Bridge, including BTC.b, WETH.e, and DAI.e, among others.”
The latest data on their collateral balances “can be easily verified by viewing the Chainlink PoR feed.”
Chainlink PoR has the following benefits:
- Automated On-Chain Verification — By keeping an up-to-date reference contract, smart contracts can get automated, on-chain verification of an asset’s collateralization, removing the need to conduct manual audits.
- High-Quality Data — Through the use of customizable External Adapters, Chainlink can source data from premium data providers who are financially incentivized to provide highly accurate and available data.
- Decentralized — Chainlink Proof of Reserve Feeds are decentralized at the data source and oracle node level, eliminating central points of failure in the sourcing and delivery of external data to BENQI.
- Transparent — Chainlink Proof of Reserve Feeds can be monitored by anyone in near real-time, allowing any user to independently verify asset collateralization.
If a bridge smart contract is compromised, the wrapped assets “listed in BENQI could become undercollateralized.”
Minimizing this risk is mission-critical “to providing users with secure functionality.”
While Chainlink Proof of Reserve helps supply the near real-time collateralization data, Chainlink Automation — a proven and reliable smart contract automation service — “helps freeze the supplying and borrowing functions of BENQI in case of outlier circumstances, such as if an anomaly is detected in the reserves backing a wrapped asset through a Proof of Reserve feed.”
In these cases, Chainlink Automation immediately “pauses and disables affected BENQI pools to help mitigate arbitrage opportunities and other potential risks from a cross-chain exploit.”
Some standout features of Chainlink Automation include:
- Highly reliable, performant, and decentralized automation — Chainlink Automation ensures transactions are identified and confirmed quickly even during periods of heavy network congestion by leveraging Chainlink’s battle-tested transaction manager.
- Time-tested infrastructure that helps save costs — Chainlink Automation enables us to eliminate in-house automation infrastructure costs, reduce resources spent on DevOps, and increase speed and efficiency.
- Built to enable faster scaling — Chainlink Automation enables us to scale faster and avoid the challenges that come with building and maintaining the infrastructure needed to reliably automate across multiple chains.
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 in 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.”