Will BendDAO and BAYC loan liquidation crush the NFT market?

YEREVAN (CoinChapter.com) — The floor prices of top blue-chip nonfungible token (NFT) projects, including the Bored Ape Yacht Club (BAYC), risk falling. A possible liquidation crisis emerging on BendDAO could crush the NFT market.

As some users pointed out, collectors have placed 32,267 ETH (over $59 million) worth of top NFTs as collateral for loans on BendDAO alone. However, many of these holders may soon lose their NFTs if the platform auctions them off. 

“NFT lending protocol BendDAO has put up a liquidation auction for the first time. The NFT involved is BAYC #533. Presently, BendDao has 20 #BAYCs with a Health Factor lower than 1.1, and 40 BAYCs with a Health Factor equal to or lower than 1.1,” 

one user revealed. 

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What is BendDAO and why is it in the news? 

BendDAO is a lending protocol for NFTs. Collectors can deposit their nonfungible tokens in exchange for Ethereum (ETH) tokens. The platform allows people to borrow up to 40% of that collection’s floor price.

However, when the floor price drops close to the value of the loan, the platform can liquidate the NFT by putting it up for auction to recoup the loaned amount. 

According to the platform’s website, it currently accepts NFTs only from 7 top collections. These include Bored Ape Yacht Club (BAYC), CryptoPunks, Mutant Ape Yacht Club, and Doodles, among others. 

In addition, others can also deposit ETH to earn up to 8.15% APR. It is also this ETH that the platform uses to give loans to NFT holders. 

This gives collectors an additional utility value to their digital assets. 

What threatened a liquidation crisis on BendDAO?

At the time of writing BAYC floor price has fallen below 72 ETH. At these prices, the health factor of several NFTs from the collection is dangerously close to liquidation levels. 

BendDAO currently holds over 2 BAYC and over 309 MAYC NFTs. These make up 2.72% and 1.59% of the total supply respectively. 

According to NFT Price Floor, Bored Ape’s floor price has dropped from over ETH 153 on May 1 to ETH 69 on August 19. During the same time, the MAYC floor has fallen from around ETH 40 to ETH 11.

According to BendDAO’s website, several NFTs from top collections are currently available at auction.

While the platform, as stated above, has the option of auctioning off these NFTs, it risks not finding buyers. Thanks to the crypto winter, traders are unwilling to part with their cash. With the floor prices falling, they may not want to tie up their earnings to a loss-generating asset. 

Hence, the platform may end up facing liquidity issues if the borrowers don’t pay back and new buyers don’t come forward to purchase these NFTs. 

In that case, the platform may wait for the market to recover. Alternatively, it can sell the NFTs for peanuts, thus hurting the floor prices and the NFT industry further.