A Robust Approach to DeFi Risk Management: BENQI’s Story
The DeFi landscape is filled with both exciting new possibilities and big risks. Over time, DeFi has faced highs and lows, which have grabbed the attention of investors and cryptocurrency fans alike. Despite challenges, DeFi is a promising sector that keeps drawing people in. One protocol stands robust with risk management as its foundation — BENQI. JD Gagnon, Co-Founder and CEO, offers a refreshing perspective on risk management in DeFi, changing it from a routine checklist item to a core focus area.
Gagnon shares a compelling metaphor: an untrained person performing surgery using only Google and a YouTube video is as preposterous as undertaking financial transactions involving millions without comprehensive risk understanding and mitigation.
This principle is an important part of BENQI’s mission — to seamlessly blend groundbreaking innovation and meticulous risk management in a market hungry for both.
BENQI’s Unique Strategy
Despite numerous instances of disastrous outcomes due to poor risk management in the industry, BENQI’s risk-focused ethos wasn’t a response to any catastrophic event. Instead, it was woven into the protocol’s DNA from inception. The lessons learned from navigating and analyzing challenges in the industry have shaped Benqi’s unique risk management approach. In Gagnon’s own words,
“We conceived BENQI with a firm belief in a risk-conscious approach, learning from both the triumphs and the trials in the DeFi space.”
Establishing a New Industry Standard: Risk Visualization and Reporting
BENQI’s risk management approach emphasizes the crucial need for protocols to offer risk visualization and reporting to their users. Gagnon shares that a protocol like BENQI, having at its peak 4bn in total value locked, should clearly go the extra mile to deliver clear insights into potential risk. To do so, BENQI is aiming for an environment where risks are pinpointed, visualized, and communicated, becoming an integral part of the protocol’s daily operations. It’s BENQI’s belief that this level of risk transparency should be the industry’s new normal.
BENQI’s implementation of IntoTheBlock’s DeFi Risk Radar contributes to this vision. According to Gagnon, The DeFi Risk Radar provides otherwise complex data to users in an easy-to-understand visualization, helping them to understand economic risk.
“Without solutions like IntoTheBlock’s Risk Radar, people are left to their own devices. And as we all know, even for those of us that are tech-inclined, it’s not always that simple to gather the right information.”
Critics, Supporters, and the Changing Tide
BENQI’s risk-focused approach may have met with resistance from some groups favoring short-term gains. However, it has been embraced by long-term investors, hedge funds, institutions, and capital allocators. The increasing pressure from regulators also hints at a broader industry shift towards acknowledging risks and the importance of managing them effectively. In fact, Gagnon expects that clear reporting of risk to users is going to be an integral part of potential future DeFi regulations.
Future Perspectives
Gagnon predicts a significant transformation in DeFi’s internal economic structures in the foreseeable future. Observing that most DeFi protocols are not profitable, he stresses the sector’s need to innovate to survive. “The future of DeFi demands innovation and a willingness to adapt,” says Gagnon. He foresees the emergence of more advanced DeFi products, paving the way for a more resilient and diverse ecosystem.
In his final comments, Gagnon highlights the necessity of standardizing risk visualization in DeFi. As the industry evolves, he anticipates third-party audits of risk visualizations becoming prevalent, enhancing transparency and reducing the risk of misinformation.
Hitting the Sweet Spot
With a vision of a risk-aware yet innovative DeFi landscape, Gagnon’s vision for BENQI is that it will establish industry benchmarks and endorse sound financial practices. His views shine a light on the immense potential of DeFi when the focus on innovation is coupled with a thorough understanding of risk.
