the bear market puts crypto lending protocols through hell. To realize this, just take a look at Three Arrows Capital, Celsius or even Voyager Digital. However, while these companies couldn’t escape their fate, BendDAO seems to be able to ward off the fate. Even more interesting, the formula chosen by the startup to avoid the crisis offers an unexpected prospect for investors.
The plight of BendDAO
These days, BendDAO, a crypto lending protocol that accepts NFTs as collateral, is experiencing a liquidity crunch. Specifically, the platform has exhausted its Ether (ETH) reserve. Note that last Sunday, it fell to a minimum of 5 wETH while it held 18,000 a few days earlier. That said, even though this number has increased in the meantimenearly 13,000 ETH are still stuck in the smart contracts of BendDAO, without possibility of withdrawal.
At the same time, the fall in floor prices on OpenSea has put borrowers in a difficult situation, with interest continuing to accumulate. On the other hand, on the whole, they find it difficult to sell the NFTs for which they have taken on debt. Indeed, at present, there are very few bids at auctions, regardless of the NFT collections offered.
The reason is that the configuration adopted by BendDAO is too demanding. First, it requires that the offers exceed the borrower’s debt. Second, to place a bid, bidders must lock their ETH for 48 hours. This implies a significant risk when the debt is higher than the floor price.
An opportunity to seize
Given these circumstances, it is paramount that BendDAO takes steps to limit the massive accumulation of debt. With this in mind, one of the platform’s founders submitted a proposal to make some changes to the protocol.
First, he suggested that the liquidation threshold, which is currently 90%, be gradually reduced, at the rate of 5% per week, until it reaches 70%. This is to ensure that collateralized NFTs are sold before the price floor gets too low.
By next month, more than 600 NFTs from the BAYC, MAYC, CloneX, Azuki and Doodles collections are expected to be liquidated. It’s about a great opportunity for NFT enthusiasts and traders. That said, the number of short sales could increase over time as interest accrues.
The proposal also mentions the reduction of the duration of the auction from 48 to 4 hours in order to improve liquidity. In addition, in order to increase the incentive for ETH creditors, the project provides for an increase in interest rates to 20%.
Yesterday afternoon, the BendDAO Governance Committee approved this proposal with 99%. This heralds a month of September with great potential. In addition, this reform will contribute to the survival of the lender, insofar as it will restore the platform’s cash flow.
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