BendDAO, a web3 NFT lending protocol, is on the news headline these couple of days. It is not day one that the platform started its lending service, what catches the market’s attention is that its liquidity pool is closing to be fully drained. It then leads to a heated discussion about whether BendDAO will drag down the whole NFT market, causing a subprime-mortgage-like crisis in the NFT scene. In my very honest opinion, it is not going to happen and I will show you why with data.
BendDAO is one of the most generous lenders among its peers, by offering a loan amount of up to 40% of the floor price of selected NFT collections. Just like the banks in the real world, BendDAO only accepts valuable assets – the blue-chip NFTs – as collateral, namely Bored Apes (BAYC), Mutant Apes (MAYC), CloneX, etc. Say, I am holding a BAYC that is worth a floor price of 130 ETH in April, then I will be eligible to take a loan of 52 ETH instantly. Note, however, that there is a liquidation risk. Liquidation might be triggered if the floor price of the collateral suffers a major decline. To give peace of mind to NFT borrowers, BendDAO has its own way to calculate floor price as well as giving a 48-hour liquidation protection if the collateral goes auction. Borrowers do not have to worry if their collaterals fall sharply all of a sudden, but they do need to worry if the price is falling slowly, gradually, and painfully.
As time goes on, the NFT floor price is going down and the borrowing interest keeps building up, the day of liquidation is not far away. In BendDAO, the “health factor” defines liquidation. If it goes below 1, the deposited NFT may get liquidated. Through the alert list, anyone can monitor what is going on on this lending platform.
As shown above, BAYC #102 is on the verge of liquidation. Calculation shows if the floor price of BAYC hit 66.5, which is just a mere 2% decrease, this ape would be greeting its new owner.
Fortunately, the depositor repaid a portion of the debt (4.81 ETH) and the ape is safe now, but not for long. BendDAO has just passed a proposal to adjust the liquidation threshold, auction period, and interest base rate. The liquidation threshold is lowered to 80% effective from September 6th while the auction period is shortened to 24 hours. But wait, it’s not over yet. The ultimate goal is 70% and 4 hours respectively. This will definitely be the game changer if the BendDAO community comes to an agreement.
The health factor immediately drops below 1 when the liquidation threshold adjusts to 80%. In BAYC #102 case, the effort of repaying the debt is totally wasted as the depositor will need to fork out even more ETH to maintain the health factor. He or she will need to pay 2.26 ETH more to bring it back to 1. What if the liquidation threshold hits 70%? Let’s see.
An outrageous 12.15 ETH is needed to maintain the health factor. If you are one of the NFT depositors in BendDAO and borrowed a good sum of ETH, you might need to take note of this. Those collaterals currently at a health factor below 1.286, are at risk of liquidation when the threshold reduces to 70%. And there are 197 of them, out of 787 total deposited NFT in BendDAO at the time of writing. So to speak, only one-fourth of NFTs are in danger, provided the proposal pass.
These 787 NFTs in the hand of BendDAO are worth a whopping 21,735 ETH. The overall market value of these NFT collections is 1,891,587 ETH, BendDAO has only a mere 1.1% share. On top of that, the 197 NFTs that are in danger (again, the proposal must pass) are valued at 7,549 ETH, an even lesser share in the overall market. All in all, BendDAO can hardly cause the collapse of the NFT market at its current scale.
Written by: [Coinlive] Nell
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