Risks & Audits

Smart Contracts Risks

The protocol will be interacting with a number of smart contracts, all of which imposes risks. This can be both known and unknown risks that could result in the failure or vulnerability on the smart contracts which could result in assets being locked or lost forever.

Liquidation Risks

Assets that are supplied or borrowed on the protocol could fluctuate in value due to the systemic risks of the issuing platforms or market volatility, including the loss of peg of certain pegged assets. This could result in the liquidation or closing of a user's position.

Risk Assessment & Management

BENQI works closely with Chaos Labs on the risk assessment and management of assets for the BENQI Liquidity Market (BLM) to safely maximize capital efficiency. The BENQI Chaos Labs Dashboard displays risk monitoring done on BENQI Liquidity Market

https://community.chaoslabs.xyz/benqi/ccar/overviewcommunity.chaoslabs.xyz

Risks Associated with Protocol Functions

1. Protocol parameter updates

BENQI distributes signing authority across multiple parties through a multisig framework. Protocol parameters, including interest rate models, collateral factors, asset listings, and liquid staking related functions, may be updated through this framework in accordance with the protocol's designated procedures and, where applicable, with input from BENQI's risk and security partners. What this means for you: The multisig framework is intended to reduce the risk of unilateral action by any single party. However, if a sufficient number of signers are compromised through phishing, key theft, social engineering, or misconduct, an unauthorized actor could:

Modify protocol parameters (e.g., collateral factors, liquidation thresholds, staking delegation rules)
Approve harmful assets or transactions
Redirect staked AVAX
Disable or interfere with protective measures

Security audits assess smart contract code but do not protect against signer compromise or misuse of authorized functions.

2. Upgrade Risks

Certain protocol contracts, including those governing the lending markets and liquid staking, are upgradeable. Where an upgrade is implemented, the revised contract logic may alter how the protocol behaves, including how your positions, deposits, staking, or withdrawals are processed. Upgrades may introduce risks that did not exist in the prior version. You should review the protocol's current upgrade framework and associated permissions before depositing assets. 3. Emergency Response Functions

The protocol includes functions designed to respond to exploits, technical failures, or market disruptions. These may include the ability to pause markets, pause staking or redemptions, adjust parameters on an accelerated timeline, or restrict certain operations.

While intended as protective measures, these functions may themselves create or introduce risks. If exercised improperly, compromised, or triggered erroneously, they could affect your ability to withdraw assets or redeem sAVAX, alter your position value, or result in losses. 4. Multi-Party Computation (MPC) Infrastructure

Avalanche staking requires the cross-chain transfer of AVAX. To manage these transfers securely, BENQI uses an off-chain Multi-Party Computation (MPC) protocol. This distributes signing authority across multiple geographically independent nodes, requiring a minimum threshold of nodes to collaborate to approve any transaction.

What this means for you:

Threshold Compromise: If a coordinated attack successfully breaches the required threshold of independent nodes simultaneously, whether through server exploits, software vulnerabilities, unauthorized access, or physical security breaches, an attacker could generate valid signatures to cause loss or misdirection of staked assets.
Operational Halts: If too many nodes experience simultaneous outages, due to severe network or infrastructure failures, and the signing threshold cannot be met, operations like staking, unstaking, and cross-chain transfers will be temporarily paused until the network is restored.

Acknowledgment

By using BENQI, including its lending markets and liquid staking protocol, you acknowledge that your assets may interact with smart contracts and related systems that are subject to certain upgrade, maintenance, and emergency response functions implemented through a multisig framework. You further acknowledge that the exercise, misuse, compromise, or failure of such functions could adversely affect protocol operations, asset availability, user positions, or result in losses. These risks, together with validator risks, MPC risks, redemption delays, and exchange rate deviations specific to liquid staking, are distinct from, and may arise independently of, risks associated with smart contract vulnerabilities, liquidations, or market conditions.

Audits

BENQI will be continuously pursuing security audits for the protocol. However, security audits don't eliminate risks completely. Please do not supply your life savings, or assets you can’t afford to lose, to BENQI, especially as a liquidity provider.