Liquidation wave spreads to NFT market


A series of NFTs of large collections are in danger of being liquidated. This can cause a chain liquidation effect similar to that associated with stETH.

This risk is happening in Bend DAO, a peer-to-peer lending protocol that allows users to collateralize NFT to borrow ETH. Many Bored Ape Yacht Club (BAYC) and CryptoPunks NFT owners have used them to borrow ETH at 30-40% of the collection floor price. When the NFT price falls to the liquidation threshold, the borrower has two options to either pay the borrowed amount or let the project sell their NFT.

However, as the situation in the crypto and NFT markets worsened, the borrowers were unable to repay their loans. This will lead to the first mass liquidation of NFT positions in history.

Floor price of NFT Bored Ape Yacht Club collection (Source: The Block)

The floor price of the NFT BAYC collection has plummeted from 153.7 ETH in May to 69.69 ETH. This pushed the Health factor of 20 BAYC lending positions down to 1.1 on Aug. 19, according to data from Bend DAO.

Health factor is an indicator to determine the risk of collateral in Bend DAO, if this number falls below 1.5, the debt is listed as “Risky” and the borrower has to pay part of the loan. in debt. Worse, when the index falls below 1 and the borrower fails to repay the loan within 48 hours, the mortgaged NFT will be liquidated.

Yesterday, the first NFT Bored Ape was liquidated when the floor price of this NFT set dropped to 72 ETH. The auction was held shortly after with a starting price of 68.4 ETH.

According to DoubleQ, the founder of Web3 Double Studio, Bend DAO can liquidate NFT assets worth up to $ 55 million to recover debts.

Indeed, according to statistics taken from Bend DAO, debts in “Danger” status include 120 BAYC, 120 MAYC, 60 CloneX, 30 Azuki and 26 Doodles.

Statistics of mortgages on Bend DAO

A large-scale liquidation event would make it difficult for a Bend DAO lender to apply the auction process to recover the debt. Bend DAO requires the bid price to be more than 95% of the floor price and total debt.

“The auction will not begin unless a bid appears. If the price is not attractive, the Bend DAO may have to “hold” a large number of NFTs at a time,” said Naimish Sanghvi, CEO of Coin Crunch newspaper.

In addition, there is currently no information on the next Bend DAO solutions if no one participates in the liquidated asset auction.

However, it is also an opportunity for some investors as some high value NFTs are auctioned at liquidation prices. Investors can bid less than 5% of the current floor price and then sell on NFT exchanges at a higher price.

However, doubleQ predicts that the NFT price may continue to decline and advises investors to wait for the moment when NFT is liquidated massively to get the best price.

The reason for this decision was the drop in liquidity on the NFT exchanges. Specifically, the trading volume on OpenSea has reached the lowest level in the past 12 months. This shows that the market will not be able to absorb all the liquidated positions and push the price lower than it is now, doubleQ said.

NFT is a potential new market. However, this is also a risky market with concerns about liquidity, scams, rug pull. 2021 is considered a hot growth year for the NFT market when there are collections worth hundreds of millions to billions of dollars such as CryptoPunks, Bored Ape Yacht Club, Doodles, Azuki…

However, under the influence of macro factors, the NFT market had certain recessions in 2022 and faced problems such as liquidity and liquidation.

Source MarginATM


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