Benqi deploys Gauntlet Platform on Avalanche
Gauntlet is jumping chains to Avalanche where we will deploy our platform for risk management on Benqi. As the first native liquidity protocol to launch on Avalanche, Benqi recognizes the early market risks of building a DeFi protocol in a nascent ecosystem. The Gauntlet Platform is purpose-built to monitor risk and manage protocols as market conditions vary. Ahead of the curve in many respects, Benqi has turned to Gauntlet to help support and scale its algorithmic liquidity market protocol.
The Complexity of a Transaction Delay Model
Scaling and supporting DeFi protocols, especially on newer blockchains, reveal extra complications. One example of this is transaction delays.
Centralized exchanges have the luxury of closed-loop liquidations but DeFi protocols often require liquidators to source their own capital. On Ethereum the friction for liquidators has greatly been reduced with the availability of flash loans and deep liquidity on AMMs.
For new ecosystems, like Benqi on Avalanche, additional considerations present themselves. When liquidators need to route liquidations non-natively, outside of Avalanche in this case, a discount factor must be applied. Cross-chain bridges, like those in development to Ethereum, are helpful sources of liquidity but confirmation times and other variables must be taken into account. This is just what the Gauntlet Platform does.
Powering up Borrow Caps
Transaction delay models are just one facet of mitigating the probability of overnight protocol insolvency. Our simulations will output recommendations for numerous parameters including borrow caps, close factors, collateral factors, and the global liquidation bonus. While all of these are important, the key lever in the early days of a liquidity protocol is borrow caps.
If most of the initial collateral assets on Benqi already exist on protocols like Compound, why are borrow caps needed at all? Even if transaction delays are accounted for more empirical data is needed to calibrate agent behavior (e.g, liquidators) assumptions in a new ecosystem. The Gauntlet Platform continuously ingests these empirical data points from the markets to refit and optimize all of our models. By monitoring average daily volume, volatility, and other variables our models remain prepared to raise Benqi borrow caps in lockstep with the growing Avalanche ecosystem.
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At Gauntlet we look to mitigate concerns for market risks so core teams and communities can focus on building. Forging new paths in DeFi, like what Benqi is embarking on, can often be daunting. By optimizing risk parameters Gauntlet can offer the market intelligence needed to drive protocol efficiency early and at scale. We look forward to growing this partnership and our participation in the Avalanche ecosystem for years to come.
