Could the NFT liquidity protocol BendDAO be on the verge of collapse? The floor price of BAYC has just hit an eight-month minimum.

The Bored Ape Yacht Club's floor price fell to 65.68 ETH over the weekend, an eight-month low. Last week, Twitter user Cirrus mentioned that NFTs valued at $59 million, most of which are Bored Apes, were being pledged as collateral in the lending protocol BendDAO.

Currently, there are about 32,267 ETH ($59,048,610) worth of NFTs serving as collateral for loans on BendDAO alone.

For the first time, many of these NFTs are at significant risk of liquidation.

A discussion thread has emerged about the largest risk facing the NFT market that remains largely overlooked.

— Cirrus (@CirrusNFT) August 17, 2022

BendDAO operates as a decentralized blue-chip lending platform that enables NFT owners to borrow Ethereum using their NFTs from popular collections like BAYC, Azuki, and CryptoPunks as collateral. NFT An NFT whale, known as Franklin, possesses over 60 Bored Apes and has borrowed more than 10,000 ETH from the liquidity protocol. This raised concerns among users speculating about the potential for liquidations affecting BendDAO and its impact on the top NFT collection, the Bored Ape Yacht Club.

Loans on the platform are backed by collateral valued at 30%-40% of the floor price, meaning if you put down a BAYC worth 100 ETH, you can secure a loan ranging from 30 to 40 ETH. Liquidation occurs if an NFT-backed loan's 'health factor' drops below 1, which is directly influenced by the NFT's floor price in conjunction with the debt and interest.

Recent declines in NFT floor prices could trigger a wave of liquidations within the protocol. Presently, 45 BAYC NFTs in BendDAO have a health factor of 1.2 or lower. Once the health factor drops below 1, these NFTs enter an auction. The borrower then has 48 hours to repay the loan, or the NFT will be sold to the highest bidder.

The FAQ addresses that 'short-term variations in NFT floor prices are commonplace,' and emphasizes that 'the consensus surrounding blue-chip NFTs wasn't established overnight, nor will it collapse swiftly.'

BendDAO  states There have been ambitious forecasts from the crypto community surrounding the potential for liquidation; however, it’s thought that the liquidation structure reduces this likelihood. Reports indicate that liquidators must bid within 95% of the current floor price and match or exceed the existing debt.

NFTs can face liquidation if their floor price falls to just 11% above the total debt. Borrowers can settle their debts during the 48-hour period with a 5% fee, which incentivizes the first bidder in liquidation.

According to Twitter user  TradFiWhale However, if the floor price drops while the liquidator is committed to buying the NFT at the original bid, it becomes a less favorable risk-reward scenario for NFT traders, but may still appeal to long-term holders.

As a result, some traders believe that only long-term investors are likely to participate in the bidding process. In the event of no bidders and declining floor prices, this could lead to the accumulation of bad debt for BendDAO and its eventual NFT holders, minimizing liquidations.

The concerning news revolves around the protocol itself. As bad debt mounts, lenders may start withdrawing their collateral. Utilization rates and interest rates could surge to 100% for loans. Consequently, some borrowers might decide to repay their debts to reclaim their NFTs and avoid exorbitant rates. BendDAO could ultimately find itself overwhelmed with bad debt, leading to a potential collapse.

What initially began as a flurry of Twitter discussions about anticipated NFT liquidations at BendDAO might spiral into a more severe situation. So far, we have witnessed auctions of Mutant Apes and proposals from Twitter users regarding how to revise the BendDAO liquidation structure.

Rather than resulting in a drastic drop in BAYC values, investors may face the risk of not retrieving their funds. This could ultimately challenge the survival of the NFT liquidity protocol BendDAO.

This year, the Web3 environment has experienced significant upheaval.

All of these developments pertain to the crypto domain, as the Luna , Celsius , and Three Arrows Capital What TradeFiWhale and other Twitter analysts predicted appears to be unfolding. The protocol is grappling with a crisis of insolvency as investors rush to withdraw their ETH assets, resembling a bank run scenario which could potentially destabilize the NFT market. NFT industry is yet to suffer a major blowout. 

Update 22/08

Over the weekend, BendDAO faced a situation where its ETH reserves were depleted, preventing some lenders from recovering their assets. A total of 15,000 ETH was loaned out.

As of Monday morning, BendDAO’s wallet had merely 0.75 WETH. That same day, it gained over 500 WETH and began paying back some investors, with the current wallet balance rising to 640 WETH.

According to the  Etherscan BendDAO co-founder known as ‘codeincoffee’ has proposed modifications to the protocol. This proposal requires approval from the DAO through a governance vote to be enacted. If approved, it could result in over 600 NFTs going up for auction in the following month.

The recommended changes by 'codeincoffee' include adjusting the liquidation threshold periodically from 85% to 70% over the next 28 days. submitted Moreover, the 48-hour auction period will be cut down to four hours to boost auction liquidity.

Base interest rates will be modified to 20%, allowing ETH depositors to earn more interest while assisting NFT holders in repaying their ETH loans.

• In the event of accumulating bad debts, proposals and voting will take place within the DAO.
• BendDAO is showing signs of improvement. The wallet currently holds 2,000 WETH, which is helping to reduce interest rates on borrowed NFTs to an APR ranging from 60% to 70%.
• 'Codeincoffee's proposal is likely to succeed, garnering 97% of votes in favor. NFTs nearing default should find it easier to attract bidders.
• As for the BAYC and MAYC collections, their floor prices have seen an uptick, which has contributed to a decrease in the number of active auctions, leading to a more favorable health factor. Many of the NFTs currently up for auction are now receiving bids.

Update 23/08

At present, 'codeincoffee's proposal to the DAO, coupled with the rise in floor prices, has alleviated the pressure on lenders most vulnerable to defaults.

A BendDAO update indicates that conditions are stabilizing.

1) With floor prices for MAYC/CloneX on the rise, the number of NFTs available for auction has decreased.

2) A significant chunk of the NFTs currently being auctioned are receiving bids.

3) Most BAYC NFTs approaching liquidation are not floor apes. My intuition suggests they will easily attract bidders.

Please keep in mind that the information presented on this page is not intended to serve as legal, tax, investment, financial, or any other form of professional advice. It's crucial only to invest what you can afford to lose and to seek independent financial guidance if you're uncertain. For more details, we recommend checking the terms and conditions along with the help and support sections provided by the issuer or advertiser. MetaversePost is dedicated to delivering accurate, unbiased reporting, but market conditions can change without prior notice.
Agne is a journalist dedicated to exploring the latest trends and developments in the metaverse, AI, and Web3 sectors for Metaverse Post. Her enthusiasm for storytelling has led her to conduct numerous interviews with industry experts, always on the lookout for thrilling and engaging narratives. Agne possesses a Bachelor’s degree in literature and has a rich background in writing across various topics, including travel, art, and culture. She has also volunteered as an editor for an animal rights charity, contributing to awareness initiatives about welfare issues. You can reach her at
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— NFTStatistics.eth (@punk9059) August 23, 2022