BendDAO, a NFT lending platform, has secured almost 3% from the entire Bored Ape collection. Many NFTs are now in the “danger zone”, and may be liquidated. Bored Ape Yacht Club non fungible tokens (NFT), purchased with borrowed funds, are in danger of being sold. There’s also concern that this could lead to more liquidations.
BendDAO is experiencing a problem. This peer-to-peer lending platform allows users to borrow ether (ETH), against their NFTs. Customers are typically able to borrow between 30% and 40% of the floor price for their NFT collection. This is the minimum price that can be purchased on the open market. The NFT is pledged as collateral.
In recent months, floor prices have plummeted so much that 45 Bored Apes with BendDAO loan ties to them are now in the platform’s “danger zone.” This is when an NFT used to secure the auction is about to be sold off. Bored Apes worth $5.3 million are in danger of being liquidated.
BendDAO is a popular NFT collector, so any fire sale could have a huge scope. BendDAO’s 272 Bored Apes make up 2.72%.
All these Apes close to liquidation on BendDAO.
— Pete Fogden (@petroz_eth) August 19, 2022
Fire-sale coming soon 🤝 pic.twitter.com/mOKJpYW6nh
Other NFT lending services could also be affected by a mass liquidation. These services have been rising in prominence over the past year due to the explosion in popularity of the NFT industry. Bored Apes are a prominent NFT collection, if they are not the most important, so any liquidations could have wide-reaching consequences that go beyond the Bored Apes.
BendDAO stated in a statement that “the short-term fluctuations of NFT floor prices are normal.” “Consensus regarding blue-chip NFTs was not built in a single day and will not collapse in a short time,” BendDAO stated in a statement.
Bored Ape owners at high risk of liquidation bought their pictures months ago, when the floor price for ape photos was 125 Ethereum. The price has fallen to just over 70 ETH in the face of a wider NFT rout. Collectors who used their Bored Apes to secure the loan can pay the interest and repay the loan.
The problem lies partly in NFT trading’s mechanics. Floor prices will adjust to reflect ETH’s fluctuating price against the U.S. Dollar. Despite ETH’s rise from $1,000 to almost $2,000 over the past month, lending services such as BendDAO are still denominated using their original token. This has caused some Bored Apes be liquidated at higher dollar values than they were bought.
Collectors are now able to shop for lower prices by purchasing NFTs that have been “on sale” at liquidation auctions. No matter how attractive the collection, auctioned NFTs must be bid on BendDAO within 5% of its floor price.
