NFT lending platform BendDAO has collateralized nearly 3% of its entire Bored Ape collection, and many NFTs have recently entered the “danger zone” of liquidation.
Dozens of Bored Ape Yacht Club (NFT) non-fungible tokens purchased with borrowed money are at risk of near-forcible sale and there is concern that could trigger even more liquidations.
The problem is happening at BendDAO, a peer-to-peer lending service that allows users to borrow ether (ETH) against their NFT. Typically, customers can borrow a loan equal to 30% to 40% of the NFT collection floor price, or the minimum price to purchase an open market loan, with the NFT collateralized.
The floor price has fallen in recent months, to the point where 45 of the 272 Bored Apes with BendDAO loans attached to them are now in the “danger zone” of the platform, as an NFT is used as a collateral. mortgage is about to be auctioned. In other words, $5.3 million worth of Bored Apes is at risk of liquidation.
BendDAOs are very popular among NFT collectors, so the scope of any fire sale can be huge. The 272 tailless monkeys associated with BendDAO represent 2.72% of the entire collection.
A mass liquidation event could also have implications for other NFT lending services, which have gained prominence over the past year as the NFT industry boomed. Additionally, Bored Apes is one of the most prominent, if not the most important, NFT collections, so a cascade liquidation in that space could have major consequences beyond just Bored. Aps.
“Short-term volatility in the NFT floor is normal,” BendDAO said in a statement. “The green chip NFT consensus wasn’t built in a day, and it’s not going to collapse in a short period of time.”
Most Bored Ape holders at risk of liquidation bought their ape a few months ago when the floor price was 125 ETH. Since then, it has dropped to just above 70 ETH amid the broader NFT roadmap. Collectors who have used their Bored Apes as collateral can simply pay the loan plus interest to withdraw the NFT from the site.
Some of the problems lie in the NFT trading mechanism, where the floor price adjusts as the ETH price fluctuates against the US dollar. Although ETH increased from $1,000 to nearly $2,000 in the past month, lending services like BendDAO are still denominated in their original lending token, causing some Bored Apes to be liquidated for dollars. la higher than where they were purchased.
As more and more high-priced NFTs are “sold” in liquidation auctions, collectors have begun window shopping for discounts. Bid on NFT auctioned on BendDAO must be within 5% of the floor price of the collection, no matter how attractive it is.
Franklin has 60 apes
A prolific NFT collector known as Franklin quickly became the focus of interest as the largest borrower on the platform. Franklin owns 60 Bored Apes and has borrowed over 10,000 ETH (about $17.5 million) from BendDAO, though Franklin tweeted that he has paid off the loans.
Like many services in the crypto world, Franklin’s case shows just how much of an influence “whales” have on smaller participants, with the moves of certain individuals potentially causing The entire ecosystem is at risk.