Dozens of Bored Ape Yacht Club non-fungible tokens (NFT) acquired with borrowed funds are perilously close to being forcibly sold, which might lead to further liquidations.
BendDAO is in trouble.
BendDAO, a peer-to-peer lending platform that allows users to borrow ether (ETH) against their NFTs, is in trouble. Customers can often get a loan equivalent to 30 to 40% of the NFT collection’s floor price or the minimum amount required to acquire one on the open market, using the NFT as collateral.
In recent months, floor prices have fallen so dramatically that 45 of the 272 Bored Apes with BendDAO loans are now in the platform’s danger zone, which occurs when an NFT used as collateral is close to being sold at auction. In other words, Bored Apes valued at $5,300,000 are at risk of being liquidated.
BendDAO is well-liked among NFT collectors, so the scope of a fire sale may be substantial. The 272 Bored Apes associated with BendDAO account for 2.72% of the whole collection.
A major liquidation event might have repercussions for other NFT loan firms, which have gained traction over the past year as the NFT sector has surged in popularity. Bored Apes is one of the most notable NFT collections, if not the most significant. Thus, cascading liquidations in that sector might have far-reaching effects beyond Bored Apes.
According to BendDAO, the changes in the NFT floor price over the near term are natural. Consensus on blue chip NFTs was not formed overnight, and it will not be destroyed in a hurry.
All these Apes close to liquidation on BendDAO.
Fire-sale coming soon 🤝 pic.twitter.com/mOKJpYW6nh
— Pete Fogden (@petroz_eth) August 19, 2022
Most holders under danger of liquidation acquired their ape images months ago when the floor price was 125 ETH. It has dropped slightly to around 70 ETH amidst a broader NFT decline. Collectors who used their Bored Apes as security may retrieve their NFTs from the website by simply repaying the loan plus interest.
A portion of the problem stems from the mechanics of NFT trading, in which floor prices alter as ETH prices move relative to the U.S. dollar. Despite ETH’s increase from $1,000 to over $2,000 over the previous month, lending services like BendDAO remain pegged in the initial lent token, leading some Bored Apes to be sold at greater dollar rates than where they were originally acquired.
As increasingly expensive NFTs are sold in liquidation auctions, collectors have begun window shopping for bargains. Bids for auctioned NFTs on BendDAO must be within 5% of the collection’s floor price, regardless of how desirable the collection may be.
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
Franklin has 60 apes
As the largest borrower on the platform, Franklin, a prolific NFT collector, suddenly became a focal point of concern. Franklin owns 60 Bored Apes and borrowed over 10,000 ETH (about $17.5 million) from BendDAO, but he had repaid the loans.
With many crypto services, Franklin’s story demonstrates how significant “whales” may be to lesser players, as the actions of some individuals can put entire ecosystems at risk.