Following the bankruptcy of Celsius, Voyager Digital and Three Arrows Capital, a fourth cryptocurrency lending platform has been caught up in the sector’s liquidity crisis. This time, it was the spectacular fall in the NFT market that acted as the detonator.
BendDAO is an ethereum lending protocol on the blockchain of the same name, whose particularity is the acceptance of NFT deposits as collateral. That is, lenders make their deposits in the ethereum pool and are paid an interest rate, and borrowers pledge NFTs (BAYC, CryptoPunks, MAYC, Azuki, CloneX, Doodles).
Last week, BendDAO suffered from “bank run“, with lenders looking to run their courses with their ethereums and borrowers, choked by the devaluation of their NFTs, unable to repay their credit. BandDAO’s reserves fell below 10,000 euros at its worst stage.
liquidation spiral
If the value of NFTs (calculated at their “floor price” in market places) placed as collateral for credits falls below the amount borrowed, borrowers must repay their credit, otherwise the DAO (decentralized autonomous organization, which will take the place. governance body of the protocol) has the right to “liquidate” them to pay for itself. This liquidation mechanism is done by selling NFTs at auction.
Problem, they can’t find anyone to take the asking price (which according to the BendDAO protocol should cover the debt contracted by the borrower). In addition, the influx of new NFTs for sale exacerbates their price drop (although each NFT should be unique, as if their market works like fungible products within a collection).
several tens of millions of dollars
In the stalemate, BendDAO asked its community to vote on technical changes, intended to speed up and facilitate the liquidation of NFTs, and to replenish its storage. This includes the particular possibility of selling NFTs to liquidate, and the increased interest offered by lenders (from 10 to 20%) to return them. But this rise in rates pushes borrowers a little further, making their loan repayments unproductive. The borrower then has an interest in giving up his NFTs.
These measures were put to the vote. Several tens of millions of dollars in NFTs are at risk in the liquidation of the protocol, which is at risk of insolvency.
chosen for you
