NFT-as-collateral loan platform BendDAO reportedly ran out of ETH over the weekend, with an announcement on Monday proposing emergency measures in hopes to stabilise its ecosystem.
On the same day, it was revealed that BendDAO only had $23,715 in the form of 15 wrapped Ether (wETH) to pay back lenders who are using BendDAO – a far cry from an approximate total of 15,000 ETH being lent through the platform.
BendDAO is a popular blue-chip loan platform amongst NFT collectors, as possible fire sales for exclusive and popular NFTs can result in huge rewards for those hoping to make a profit.
What’s happening?
BendDAO allows for NFT holders to deposit their NFTs to borrow Ether (ETH). Once an NFT is deposited in BendDAO, they are able to borrow up to 40% in ETH of the deposited NFT’s collection’s floor price, or the minimum price in which any user can purchase an NFT on the open market, with the NFT used as collateral.
1/ How @BendDAO and BAYC loan liquidation can nuke the entire NFT market
30,300 ETH ($55m) worth of NFTs on the line
A must read thread to protect yourself 🧵
— doubleQ (@xDoubleQ) August 19, 2022
Over weekend, BendDAO users were the victim of mass fear and anxiety, resulting in a bank run that drained BendDAO’s reserves from more than 10,000 wETH to a new low of 5 ETH.
Prior to the bank run, several of the NFTs that BendDAO held as collateral were at the risk of being liquidated. 45 of 272 Bored Apes held by BendDAO were indicated in being in the platform’s “danger zone”, or when a collateralised NFT is at the brink of being auctioned off.
As BendDAO had collateralised almost 3% of the infamous Bored Ape NFT collection, close to $5.3 million worth of apes are at the risk of liquidation as a result of falling floor prices over the past few months.
There are now 19 mutant apes for sale in the BendDAO auctions, including a few beauties. M2 horns has a bid above floor. Gold grill has bids below. A few of these still have no bids. Bids must be within 5% of current MAYC floor. pic.twitter.com/24FHcLdrWA
— NFTStatistics.eth (@punk9059) August 19, 2022
”The short-term fluctuations in NFT floor price are normal,” said BendDAO. ”Consensus on blue chip NFTs wasn’t built in a day, and it will not be collapsed in a short period of time.”
What is BendDAO doing to control the potential liquidity crisis?
The BendDAO dev team suggested that the liquidation threshold for collateral will be reduced to 70% of the loan value, down from 85%. Auction periods on BendDAO will be reduced to 4 hours, from 48 hours. Interest rates on loans on BendDAO will dramatically change from 100% to 20%.
