BendDAO: NFT's slow-explosion bomb?

DeFi and CeFi have Celsius, NFT has BendDAO.

What is BendDAO?

BendDAO is a protocol for prepaid NFT purchases and NFT mortgage lending. Bend's interest rate model will depend on the level of LTV in the pool. With a current Utilization Rate of around 50.7% (at the time of writing), current lending/borrowing rates on BendDAO fall between 6% and 16%, respectively, the Dune Analytics.

Utilization Rate shows what percentage of the total assets in the loan pool.

The Health Factor (HF) is the factor used to determine the risk of the collateral held in the Bend, and if this number falls below 1.5, the debt is classified as “Risky”. the borrower has to pay a part of the debt, and if the HF falls below 1 and the borrower does not repay the loan within 48 hours, the mortgaged NFT will be liquidated through auction.

Buyers who wish to participate in the auction can simply prepay 60% of the value of the NFT work being auctioned and borrow 40% from a flash loan from platforms like AAVE. This NFT work is then collateralized into the Bend to withdraw ETH and repay the debt from the flash loan.

BendDAO currently only supports lending to blue-chip collections such as BAYC, MAYC, Doodles, CloneX, CryptoPunks, Space Doodles and Azuki.

Risk of collapse when the market wobbles

On August 18, a Twitter account named Cirrus posted a thread warning of the risk of mass liquidation on BendDAO.

There are currently 32,267 ETH ($59,048,610) worth of NFTs being used as collateral for loans on BendDAO alone

For the first time ever, a lot of these are at serious peril of liquidation

A thread on the single biggest risk to the NFT market that nobody is talking about

— Cirrus (@CirrusNFT) August 17, 2022

“Currently 32,267 ETH (equivalent to 59 million USD) of NFT assets are being used as collateral to borrow on BendDAO.

And this is the first time that these loans face the risk of being forced to liquidate.

The biggest ticking time bomb of the NFT market but why isn't anyone talking about it.”

The NFT market from about May 2022 until now has witnessed a long slide in trading volume, and so the floor prices of many blue-chip collections such as BAYC or CloneX have also fallen. go significantly. 

According to statistics from BendDAO, debts are in Risky form (with HF below 1.5) including:

• BAYC: 120 (44.12% of total BAYC being mortgaged)
• MAYC: 120 (38.83% of total MAYC being mortgaged)
• CloneX: 60 (42.25% of total CloneX in mortgage)
• Azuki: 30 (16.04% of total Azuki in mortgage)
• Doodles: 26 (36.11% of total Doodles in mortgage)

Looking at the above statistics, it can be seen that the situation is not very positive for BendDAO at this time.

Another side information that confuses NFT hodlers is that Franklin - the unlucky guy who lost 100 ETH because of "playing around" with the previous ENS domain name - borrowed more than 10,000 ETH from BendDAO (approx. largest loan from Bend's protocol at the moment). But in fact, Franklin paid the principal and interest and got back his 60 monkeys.

I currently owe 0 ETH to BendDAO and have 60 apes in my wallet. I have borrowed 10245.37 ETH from them, and have paid it off plus 9.13 ETH total interest. If I was in debt 10k ETH, I would not payoff and would be chilling on an island right now. Starting a short spaces now. pic.twitter.com/qEf2xInzoA

— Franklin has 59 apes (@franklinisbored) August 18, 2022

“I currently owe BendDAO 0 ETH and have 60 APE in my wallet. I once borrowed 10,245 ETH from BendDAO but paid it off, including interest of 9.13 ETH.

If I owed 10k ETH, I wouldn't pay and fly to some beautiful island to enjoy life.

Short, nothing else.”

You can refer to the list of debtors of BendDAO here.

From June 15 to now, there have been quite a few MAYC liquidations. As of today, there are about 70 Doodles being bid on Bend.

What is the reason?

Explaining the source of this incident, account punk9059 (Research Director at PROOF - the project behind Moonbirds) suggested that BendDAO should have adjusted the HF index when the debt ratio increased in the past year. floor price situation of NFT collections is decreasing.

According to the liquidation threshold of about 90% for BAYC, only when the floor price is 11% higher than the debt, ie HF = 1, the auction to liquidate the assets takes place.

Because the loan balance keeps increasing but the HF stays the same, the risk to the lenders also increases during this bleak market, especially in capital markets. have volatile liquidity like NFT.

Aug 21, 2022