The NFT market is on the brink of collapse because of the BendDAO protocol

NFT market one step away from the apocalypse – In 2021, the NFT market witnessed unprecedented growth. Bored Ape, CryptoPunk and many other collections have seen their prices skyrocket. However, the demise of the crypto markets has also impacted the NFT ecosystem. So much so that the latter would be on the brink of disaster because of the BendDAO protocol.

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BendDAO: the NFT lending platform

We’re all more or less used to it loan logs (ready) decentralized. In practice, these allow users to lend by blocking cryptocurrencies as collateral in return.

When the value of the security falls and approaches the borrowed value, the protocol sells the security to repay the loan. This mechanism makes it possible to keep loan protocols solvent and avoid bad debts.

Given the rise of NFTs, the makers of BendDAO had a brilliant idea. So they created one Lending platform specialized in NFTs.

In order to, BendDAO brings together two types of users:

  • That Liquidity Providerdeposit the ETH to generate income;
  • That NFT holderwho can borrow ETH by depositing NFTs as collateral.

In order to ensure the viability of the loans, the land price (Minimum price) the NFT must be 30-40% higher than the borrowed value.

Not surprisingly, this protocol has had considerable success. Overall the equivalent of $59 million in NFT has been secured for the record.

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BendDAO faces the fall of the crypto and NFT markets

Nonetheless, NFTs are subject to price changes just like cryptocurrencies. Thus, the recent decline in the crypto market has obviously impacted the NFT market as well.

Bad news for BendDAO, who knows a winding cascade. This has been revealed @CirrusNFT in one thread Twitter.

In fact, more and more loans backed by NFTs are on the brink of liquidation. This is governed by a health factor. It calculates the ratio between the value of the security and that of the loan.

If you drop your credit health score below 1, your NFT will be auctioned off for 48 hours and sold to the highest bidder if you don’t repay the loan on time. »

This situation could prove dramatic for several renowned NFT collections.

The case of Bored Ape and Mutant Ape NFTs deposited on BenDAO

As highlighted by CirrusNFT, 2.8% of BAYCs and 1.6% of MAYCs are currently stored on the BendDAO protocol.

With prices falling, the value of these NFTs has fallen dramatically since their ATH. Therefore, several liquidations have already been recorded in the BendDAO log. All in all 15 MAYCs are currently for salebelow the reserve price on BendDAO.

We saw the first mutant liquidations due to low health credit this week. Unless borrowers suddenly start paying off their loans en masse, we’re likely to see more in the near future. »

As we have just seen, NFTs to be liquidated are sold to the highest bidder. This action could result in the reserve price of these collections being reduced.

If the reserve price goes down, further liquidations can be triggered, lowering the reserve price again.

Thus, it is possible to get into a liquidation spiral. In this case, each liquidation leads to further liquidations, which inevitably lowers the reserve price of these collections.

On August 18, the first liquidation of a BAYC was recorded. So the#533 was listed for sale at 68.4 ETH, almost 4 ETH below the reserve price, according to the minutes.

NFT BAYC #533 is about to be liquidated on BendDAO.
NFT BAYC #533 is about to be liquidated on BendDAO.

It remains to be seen whether the holders of these NFTs will manage to pay their loans on time or whether these NFTs will be liquidated. If liquidation occurs and it leads to a liquidation spiral, it could mean the biggest price drop for Yuga Labs collections.

At the same time, the Bored Ape community could well see their own NFT trading platform emerging. In fact, Magic Eden wants to set up an NFT market using the APE token as the exchange currency.

Protect your NFTs in your wallet rather than as collateral on a lending platform. Stock up on ETH while you wait for better days. Register now on the PrimeXBT platform (commercial link).

#NFT #market #brink #collapse #BendDAO #protocol

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