Millions of dollars of Bored Ape Yacht Club, CryptoPunks and CloneX NFTs risk liquidation as BendDAO faces a debt crisis. BendDAO is a peer-to-peer lending service that allows users to borrow Ethereum against their non-fungible tokens.
Loans — from BendDAO to NFT buyer — are typically 30% to 40% of a NFT collection's floor price, or the minimum purchase price on the open market, and customers put up their NFTs as collateral. BendDAO calculates the health of the loan based on the floor price of an NFT collection and how much is still owed. If the floor price falls too close to the amount of the loan, it encroaches on a liquidation threshold and BendDAO will auction the NFT to recoup the debt.
BendDAO will automatically put collateralized NFTs up for auction if their "health factor" falls below 1.2, and could liquidate them completely if it falls below 1. In that scenario, borrowers have 48 hours to repay their loans or risk losing their NFTs. And it's starting to play out.
NFT Price Action
Where'd All My Apes Go?
The price of Bored Ape NFTs fell below 70 ETH in August from about 153 in May. Some crypto analysts estimate there are roughly $55 million worth of NFTs at risk of liquidation. Currently, there are dozens of Bored Apes, Mutant Apes and CloneX NFTs that have health factors under 1.2, according to BendDAO's auction page. But a majority that defaulted have no bids. As things stand, borrowers will need to pay 100% interest on their loaned ETH. And BendDAO is deciding on changing its terms to incentivize bids and make it easier to sell the defaulted digital assets.
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