NFT lending platform, BendDAO, has found itself in a precarious situation as a consequence of the ongoing NFT bear run. Seeing an inordinate number of its Bored Apes sitting perilously close to liquidation, while many of its depositors jumped ship expecting the worst.
Back when it launched, BendDAO thought it had the perfect plan, it would issue collateralized loans backed by high value NFT assets. While, those contributing to the liquidity pool would benefit via lucrative rewards. Through the initiative, BendDAO would issue loans based on around 30-40% of the NFT collection’s overall floor price. However, if that price dropped to within 10% of the loan’s value, a 48-hour grace period would commence. Therefore, allowing the owner to pay off the loan and reclaim the NFT, or see their asset auctioned off at a minimum price of 95% of the accrued debt.
The Best Laid Plans of Apes and Men
As these thresholds began to be met however, the entire ecosystem began to unravel. Reports widely circulated that an unprecedented number of Bored Apes faced liquidation. With 45 of the platform’s 272 BAYC assets sitting in the Danger zone. As a result, many if its depositors began removing their funds from the platform in fear of a total collapse. At one point seeing its reserves drop from over 10k ETH down to around the 5 ETH mark. To exacerbate the situation, the market for Apes reached a significant low, and BendDAO refused to sell for anything that represented more than a 5% a loss. Together, these two factors created a dangerously low reserve, and a host of assets that nobody wanted to buy.
For the time being however, the storm has abated slightly, with many owners fearing for their cherished assets, repaying their debts, and in turn providing liquidity to the platform. Despite this, significant flaws remain within the operation of BendDAO. So, immediate solutions will see the platform reduce its grace period to just 4 hours, interest rates raised to further incentivize creditors, and the policy of not accepting bids at a loss altered.
Going forwards, a difficult time continues to face BendDAO and other NFT collateralized lending platforms. So, if floor prices keep dropping, there market could end up flooded with cut price NFTs. Which in turn will force the prices down even further.
Want more? Connect with NFT Plazas
*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational material only. Individuals are required to fully research any product prior to making any kind of investment.
Decentralised human, Explorer, Adventurer.