Is NFT lending protocol BendDAO heading for doom?

LAGOS (CoinChapter.com) — The future of nonfungible token (NFT) lending platform BendDAO has caused further disarray in the cryptocurrency space as several NFT collections’ plummeting floor prices pose a threat major issue to the lending protocol.

BendDAO’s Wrapped Ether (wETH) contract was emptied in less than 24 hours due to fear of a potential liquidation intensified. However, data from the on-chain analytic platform Etherscan indicated that the contract has already significantly depleted to pay lenders.

Notably, BendDAO is a peer-to-peer lending service that lets users borrow Ether against their NFTs. Customers can obtain loans up to 40% of the NFT collection’s floor price with the asset pledged as collateral.

However, the recent price drop of several NFT collections put a high number of users’ assets at risk of liquidation. A Twitter user, while highlighting the issue, said a large number of NFTs used as collateral were nearing liquidation points. In addition, he noted that NFT borrowers in the platform will now pay 100% interest on the ETH they borrowed.

It is worth noting that the liquidation level is determined by the “health factor” of the NFT-backed loan. When the value of this metric drops below 1, the token automatically enters into a 48-hour liquidation protection state where the owner can choose to pay off the debt and reclaim the token.

However, auctioning the NFT to the highest bidder will occur if the user fails to clear the loan and reclaim it.

Notably, BendDAO’s available auction page shows that various NFT assets have already entered the 48 hours. 

Corroborating the development data from Dune Analytics shows that several NFTs have plummeted significantly from their all-time high. This includes CryptoPunks that’s down 125 ETH to 66.5 ETH, Bored Ape Yacht Club NFTs down from over 150 ETH to 66 ETH at press time.

No Bid For BendDAO NFTs

Meanwhile, NFT researcher @punk9059 has pointed out that the NFTs used as collateral that already defaulted on BendDAO currently has no bids. Notably, because of the falling NFT floor prices and high-interest rates, the lending protocol finds it difficult to sell the NFTs.

“Why are there no bids? (a) BendDAO requires bids above the “debt” the borrower owes AND above OpenSea floor * 0.95. (b) To open bid, you have to lock up ETH for 48 hrs. Debt is sometimes higher than floor & people don’t want the 48 hr risk on floor NFTs.”

@punk9059 stated.

The NFT researcher indicated that the current situation put the protocol at risk as it cannot refund borrowers. He noted that the market doesn’t feel it directly as long as the platform sits on the NFTs with no bids.

Furthermore, BendDAO co-founder, via his Twitter handle, announced that his team is working on emergency changes to the protocol.

He noted that following a vote on the protocol, the team would work on changing the parameters of the NFT lending platform. The update will take effect 24 hours after approval by the protocol governance through the voting process.

Additionally, it is worth knowing that BendDAO has 16,453 ETH ($27 million) in outstanding loans, according to its homepage.

CryptoPunks Flips BAYC In Terms Of Floor Price

Meanwhile, Bored Ape Yacht Club (BAYC) has been displaced as the top NFT collection. Data from analytics platform NFTPriceFloor revealed that CryptoPunked returned to the top position after being deposed by BAYC in December.

At the time of publication, BAYC was going for 65.70 ETH while CryptoPunks was selling for 66.30 ETH. Additionally, BAYC is currently at its lowest level this year after dropping by almost 30% in the last 30 days.