Home Ethereum Cash crunch could loom for Bored Ape-backed loans as floor price drops

Cash crunch could loom for Bored Ape-backed loans as floor price drops

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Cash crunch could loom for Bored Ape-backed loans as floor price drops

The floor price of non-fungible tokens Bored Ape Yacht Club, a leader among NFT collections, has fallen to an eight-month low, raising the risk that dozens of NFTs will be used as collateral for decentralized lending service BendDAO be forcibly sold.

This scenario could then trigger a cascade of further liquidations, said Anndy Lian, author of the new book. NFT: from zero to heroin an interview with Forkast.

BendDAO is a peer-to-peer platform that allows users to submit NFTs as collateral for Ethereum loans for around 30% to 40% of the NFT floor price – or the minimum price to buy any of the Bored NFTs Ape Yacht Club on the open market.

Currently, 121 of the 227 Bored Apes collateralized on BendDAO – 2.27% of the entire collection – are considered at risk of liquidation as the collection floor price approaches the level at which the tokens are valued on the exchange. form.

“If this happens, it would be a major setback for all NFTs that are on Ethereum,” Lian said..

Bored Apes being the second best-selling NFT collection, Lian said a liquidation of this size would only put further downward pressure on the collection itself, others on the network, and even the price. of Ethereum itself. Combined with the existing macroeconomic pressures likely to be the crypto market this year, it could spell more heartache for investors.

“This problem downstream [could] then create a really, really bad winter for everyone next year,” he added.

sick monkeys

BendDAO assesses the level of risk of a collateralized NFT via a so-called “health factor,” which is a ratio of the value of the individual NFT to the collection floor price. When this metric falls below 1, the token is automatically entered into a state of liquidity for 48 hours to give the owner the option to repay the loan and interest to recover the token or put it up for auction.

There are currently 21 Bored Ape Yacht Club NFTs with a BendDAO health factor below 1.1 and another 42 with a health rating below 1.2.

In response to the threat of liquidation, BendAO said In a blog post on Monday, they would adjust the liquidation threshold for these assets to 70% of the price floor by September 20 in four steps, with the first adjustment to 85% taking place on August 30.

They also said they would reduce the auction period to just 4 hours to improve auction liquidity.

“We’re sorry we underestimated how illiquid NFTs could be in a bear market when setting initial parameters,” reads the BendDAO blog post. “Over the past few days, we’ve received tons of comments and suggestions from the community.”

The floor price for the collection, commonly known as BAYC, hit 65.68 Eth (US$104,693) on Saturday, the lowest since early January and a price that was briefly topped by rival CryptoPunks NFT collection on Sunday. evening.

The current BAYC Collection price floor of 68.48 Eth marks a 55% drop from the high of 153 Eth in early May, which Lian attributes to two main factors.

Blend factor

“The first is that the overall market is not in the best of conditions,” he said. “Number two, there are still people who doubt Ethereum 2.0. This adds some anxiety to people who keep NFTs and use them as collateral.

Ethereum 2.0, commonly referred to as “the merger,” will involve transitioning the world’s second-largest blockchain network from its current proof-of-work consensus mechanism to a proof-of-stake system. This change will make the network much more energy efficient, but will make Ether crypto miners effectively redundant, which has caused some miners to postpone the transition.

While Ether has recently shown signs of price recovery, it is still down 55% year-to-date, a decline that is reflected in the NFT market which has failed to amass more $1 billion in monthly sales for the last three months. In March, April and May, sales exceeded US$2 billion or US$3 billion per month.

“It’s actually a big concern for many NFT speculators because the chances of them selling their NFT or BAYC at a certain high price won’t arise any time soon,” Lian said of the lackluster sales numbers. . “It’s worrying.”

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