The Bored Ape Yacht Club (BAYC) whale has borrowed more than 10,000 ETH from BendDAO. After this situation was revealed, the community’s fears surrounding the altcoin project increased.
What is BendDAO?
Members of the crypto community are concerned that another tier of potential liquidation is on the horizon, this time in the NFT market. Concern focuses on BendDAO, one of the few so-called ‘NFTfi’ protocols aimed at accelerating the financialization of the NFT market. BendDAO is a lending altcoin protocol built for NFTs. It is possible for ETH depositors to provide liquidity to earn returns. Also, NFT holders can borrow ETH when they lock their holdings. In turn, collectors benefit from their assets beyond simply stretching or owning a piece for the art itself. When someone locks an NFT in BendDAO, they have the opportunity to borrow up to 40% of the base price of that collection. However, if the floor price falls and approaches the original value of the loan, liquidation of the NFT is likely. In this case, it is put up for auction. The borrower has 48 hours to repay the loan or face liquidation.
An alias NFT collector known as Cirrus sounded the alarm for BendDAO on Twitter on Wednesday. He pointed out that $59 million of NFTs, many of which were at risk of liquidation, were deposited as collateral in the protocol. They said the ‘horrible’ number of BAYC NFTs invested in the protocol was in the factor of low health. This is a metric used to determine when an asset is close to liquidation.
Bored Ape whale caused fear in the altcoin market!
Shortly after Cirrus posted the tweetstorm, it was revealed that a prolific BAYC member identified as Franklin had borrowed 10,245.37 ETH (about $19.2 million at current prices) from BendDAO. After that, the fears of the community increased. Franklin is one of the world’s largest NFT whales with a portfolio of 60 Bored Apes. Concerns stem from the idea that they could lower the floor price to pay off their ETH debt. Because they have too many NFTs. It’s possible that this could potentially lead to a liquidation tier where other NFT collections invested in BendDAO are sold at a discount as the base price drops.
Franklin announced on Twitter on Thursday that they have repaid their debts to BendDAO. But that wasn’t enough to allay fears. The NFT market has not experienced a major liquidation so far. However, other areas of the field have hit hard over the past year due to excessive leverage. The most notable examples of hyper-leveraged crypto trading involved the bankrupt crypto hedge fund Three Arrows Capital, which borrowed billions of dollars from major lenders, mostly through unsecured loans. Crypto lender Celsius, whose business model includes promising lucrative returns to customers, was one of the creditors of Three Arrow’s Capital. As you follow on Kriptokoin.com, the market collapsed and went bankrupt. In addition to lending to Three Arrows, Celsius has turned to DeFi and products such as Grayscale’s GBTC and Lido’s staked ETH. With NFTfi protocols like BendDAO gaining momentum, crypto holders seem right to fear another liquidity meltdown.
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