Benqi Strategies

Yield Yak
3 min readSep 6, 2021

Yield Yak now offers one-click leveraged farming strategies for Benqi which optimize your single-asset deposits, automatically compound your returns, and save you time. Benqi strategies are available now on Yield Yak for AVAX, WETH, WBTC, LINK, DAI, USDC, and USDT.

Benqi Incentives for Lending and Borrowing

Benqi is a lending product for Avalanche. It was one of Avalanche’s most anticipated projects and currently secures more than $2B in liquidity. Users who lend funds to Benqi are eligible to receive interest payments paid by borrowers.

On top of traditional lending returns, Benqi offers additional incentives. Benqi pays both borrowers and lenders in QI (to bootstrap the network) and AVAX (as part of the Avalanche Rush program). For most assets today, borrowers are paid more in incentives than the cost of borrowing.

Rates as of September 6, 2021 (Check the latest at Benqi)

In such incentive conditions, Benqi users may use low-risk leveraged lending strategies to maximize their APY.

Yield Yak Strategy

Yield Yak’s strategy is simple: optimize the ROI of Benqi positions.

YY uses leveraged farming which lends and borrows the same asset. By doing so, YY earns the incentivized APY on deposits plus the incentivized APY on debt. This is considered a low-risk leverage strategy because both lending and borrowing use the same asset, meaning the risk of liquidation is significantly easier to manage without introducing exchange rate volatility.

Leveraged Position Example

DAI has a 60% collateral factor, meaning YY can borrow up to 60% of the deposits and lend them again. Rolling up a leveraged position:

  • Deposit 100 DAI, Borrow 60 DAI
  • Deposit 60 DAI, Borrow 36 DAI
  • Deposit 36 DAI

After three steps, the original 100 DAI is now leveraged to become worth 196 DAI in lending terms with 96 DAI in borrowed assets.

This hypothetical position earns the incentivized lending APY on 1.96x the original deposit, plus 0.96x of the incentivized borrowing APY.

  196 DAI x 7.74% (lend side)
+ 96 DAI x 1.70% (borrow side)
= 16.80% APY, leveraged deposit

Compared to just depositing the original 100 DAI, this represents over a 2X better return.

  100 DAI x 7.74% (lend side)
= 7.74% APY, simple deposit

In theory, YY may leverage up to seven times. However, a lower leverage target provides benefits: at today’s TVL, going past four leverage steps has a low relative impact to the additional gas consumed. And by saving gas, YY enables more frequent reinvests which compound incentives faster and reset positions to their target leverage.

When to Avoid Leverage

There are two scenarios where leverage should not be applied to today’s strategies:

  1. The collateral factor of an asset is 0%, meaning it is not possible to borrow
  2. The net borrowing APY turns significantly negative and the impact of a leveraged strategy is diminished.

YY may modify target leverage, meaning changing market conditions are automatically reflected in the yield for users.

About Yield Yak

Yield Yak is an easy-to-use tool to earn more yield from defi farming on the Avalanche network.

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Yield Yak

Earn more yield. Tools for defi users on Avalanche.