Don’t Miss Top-Notch NFT Bargains
Fears are spreading in the NFT community, as BendDAO, a crypto lending company using NFTs as collateral, faces liquidation. Now there is talk of a large-scale fire sale of Bored Ape Yacht Club NFTs. However, there is more to the plan than that. Apparently there is also a stack of Doodles, Azuki and RTFKT NFT.
So what’s going on with BendDAO, and how can you get your hands on a good deal?
What is BendDAO?
BendAO is a lending system through which you can borrow ETH using your Blue-chip NFTs as collateral. Thus, as an owner of a Blue-chip NFT, you can instantly access ETH. Then those who lend ETH get instant interest. It’s basically a win-win for users. In order to avoid losses caused by market fluctuations, the borrower will have a liquidation protection period of 48 hours to repay the loan.
Why is BendDAO liquidating assets?
Liquidation occurs for several different reasons. Firstly, due to lower floor prices of some Blue-chip NFTS. When this happens, the “health factor” of the NFT-backed loan drops below 1. For example, by taking out a loan when BAYC is 100th, you can instantly borrow 40th. But if BAYC’s floor price drops to 44th, it triggers the 48-hour liquidation protocol. This is to ensure that the lender gets their loan back plus interest. We saw that happen this week with BAYC #533 (used as collateral against a 66.95 ETH loan) auctioned.
Second, BendDAO found itself in a difficult situation. They only have 12.8 WETH left in their contract. Therefore, loans granted through BendDAO cannot get their money back. There are around 13,000 ETH on loan at the time of writing, so the remaining ETH in their contract is less than the total ETH on loan. As a result, the “debt” against NFTs is growing rapidly.
How can you pick up a good Blue-chip NFT deal?
With the proposed changes, there could be some amazing deals on Blue-chip NFTs over the next month. If the proposal is accepted, they will auction a large number of previously unlisted NFTs. By reducing the asset liquidation threshold, BendDAO ensures that NFTs can be auctioned off before the floor drops to catastrophic levels.
If you want to watch the auction activity and try to land a good deal, keep an eye on the BendDAO “Auction Loans” page to start bidding.
What about default NFTs?
Well, those are auctioned, but the majority of auctioned NFTs have no bids. Only 4 of the 17 MAYCs currently up for auction have bids. Bids are missing because BendDAO requires bids to be above the debt amount AND above the OpenSea floor price. The debt can be higher than the floor, so most people don’t want to buy them. Also, to open an offer, you need to lock your eth for 48 hours, and that’s a risk many aren’t willing to take.
So, since no one is bidding on defaulted NFT loans, the DAO ends up with more debt than they are currently worth. The DAO needs to find a way to recover the ETH from these NFTs to pay the lenders.
To mitigate this, BendDAO offers modifications to the loan protocol. One proposed change is that auctions will only last 4 hours instead of 48, eliminating the risk of having your ETH locked up for two days. Another change is that the minimum starting bid could be the total debt on the NFT rather than 95% of the floor price. This means that the gap between the floor price and the starting price will be much larger, which will encourage more bidders.
In conclusion, BendDAO gives us a lesson in preparing for the bear market in the bull market. While it might feel comfortable to use NFTs as collateral in a bull market, the model behind many NFT lending companies is still too primitive. That being said, many in the NFT community are eagerly awaiting the sale. After all, who doesn’t love a top notch NFT?