BendDAO – a lending protocol for non-fungible tokens (NFTs) – is the latest project to have been hit with an insolvency crisis. The five-month-old platform has reportedly run out of ETH over the weekend. According to the researcher, NFTStatistics.eth, BendDAO is just left with 12.5 WETH in the contract.
The lenders of BendDAO have landed in a sketchy situation. Its co-founder said they have come up with a proposal to improve the protocol, hoping to make out of the crisis.
BendDAO Experiences Bank Run Concerns
BendDAO essentially enables NFT holders to deposit their assets as collateral to borrow Ether. When an individual deposits an NFT into the lending platform, it lets them borrow up to 40% of that collection’s floor price in ETH. The latest bank run means that people who lent money to others via BendDAO to purchase NFTs on leverage cannot pull their money out. NFTStatistics.eth revealed that nearly 15,000 ETH was lent.
The researcher said the borrowers will have to pay 100% interest on the ETH they take while the “debt” against these NFTs continues to rise rapidly. There isn’t a single bid to liquidate the NFTs. With the high debt, there is little incentive for a bidder to lock up ETH for 48 hours.
NFTStatistics.eth further explained,
“Why are there no bids? 2 reasons: (a) BendDAO requires bids above the “debt” the borrower owes AND above OpenSea floor * 0.95 (b) To open a bid, you have to lock up ETH for 48 hrs. Debt is sometimes higher than floor & people don’t want the 48 hr risk on floor NFTs.There are a lot more NFTs about to default & come to auction, either due to debt rising w these sky-high interest rates or OpenSea floor falling.”
Currently, many NFTs from prominent collections such as Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Doodles, and CloneX have been flagged on an “alert list” due to the risk of liquidation. The drained ETH reserves have hampered depositors’ confidence as bank run concerns escalated.
Pseudonymous BendDAO co-founder CodeInCoffee, on the other hand, asserted that the protocol is working as expected. The team has devised a new proposal “to help ETH depositors to build confidence.” In order to achieve that, the proposal in question has introduced short-term parameter improvements, including adjusting the liquidation threshold and auction period, in addition to internet base rate and UI improvement.
Moving on, BendDAO aims to support offers for collateral in BendDAO, reach as many exchanges as possible to list collateral, try to support downpayment for auctions and provide more liquidity for NFTs in the long term. The update will come into effect 24 hours after receiving approval through the voting process.
The development comes as one of the most sought-after NFTs collections -BAYC’ss – floor price crashed to a low last seen eight months ago.