The NFT market is in bad shape. While sales are down, a lending protocol is likely to cause many collections to collapse in price.
The non-fungible token (NFT) market is currently going through a wave of turbulence. After last year’s enthusiasm, sales of digital works are at half-staff. The price of many popular collections has shrunk.
For example, Bored Ape Yacht Club Collection (BAYC), based on the Ethereum blockchain, saw its price drop to its lowest level since its inception. Since May, the collection has lost half its value, despite the interest shown by many celebrities. Monthly sales volume on OpenSea, the exchange platform, fell to a level not seen in the space of a year.
The NFT sector has been significantly affected by the fall in cryptocurrencies. Following the example of Bitcoin, altcoins lost a significant part of their value in a few months. The cryptoactive market, which has more than 18,000 different tokens, is already valued about 1000 billion dollars. By the end of last year, the crypto ecosystem had managed to surpass $3 trillion in market valuation. Before long, billions of dollars in valuation evaporated. Hungry for cash, investors turned away from the NFT market.
On the same topic: This building for sale as NFT has lost 40% of its value
Lending Platform Threatens NFT Market
In this already complicated context, a platform called BendDAO threatens to endanger the entire ecosystem. BendDAO is a borrowing protocol (“ loans” in the crypto vocabulary). The decentralized platform allows to obtain loans in cryptocurrencies by depositing NFTs. These digital works are held as collateral on the blockchain by the protocol.
If BendDAO finds that the value of the NFT deposited as collateral collapses below a certain threshold, the non-fungible token will be automatically put up for sale. The proceeds from the sale are then used to pay off the investor’s loan. Thanks to this method, BendDAO and other lending services in the decentralized finance sector do not run out of cash if an investor does not pay what he owes.
Please note that cryptocurrencies loaned to owners of an NFT are provided by other investors. These lend their coins, Ether in this case, to earn interest. The loans offered by BendDAO are instant. As the platform explains on its website, it is possibleget ” instantly up to 40% of the value » compromised tokens.
Once the price of NFTs deposited as collateral falls below a certain threshold, BendDAO prepares to sell the digital works. The protocol has established a 48 hour protection period in the face of market volatility. Clearly, the borrower has 2 days to pay off their loan and redeem their NFT.
This mechanism has attracted liquidity-seeking NFT holders. $59 million in non-fungible tokens have been posted as collateral in the protocol, blockchain analysis shows.
Okay. Long thread on the BendDAO situation:
1) They have run out of ETH. There is only 12.5 WETH in the contract.
2) What does this mean? People who slow others through BendDAO to buy NFTs with leverage cannot withdraw their money. Around 15,000 ETH was slow.
— NFTStatistics.eth (@punk9059) August 21, 2022
Unfortunately, the platform is bearing the brunt of the NFT price drop. As various market watchers on Twitter explain, many digital assets escrowed are close to settlement. Non-fungible tokens entered the 48-hour period before the scalping.
There are currently 32,267 ETH worth of NFTs ($59,048,610) being used as collateral for loans only on BendDAO
For the first time in history, many of these are in grave danger of liquidation.
A thread about the biggest single risk to the NFT market that no one talks about
— Cirrus (@CirrusNFT) August 17, 2022
Several pieces from the Bored Ape Yacht Club collection are on the bench. Unfortunately, a large number of tokens that have already been auctioned on OpenSea do not find buyers. seems to have shortage of investors. Only 4 of the 17 Mutant Ape Yacht Club, a collection of NFTs featuring mutant apes, auctioned received a bid on OpenSea. The absence of offers is explained in particular by the restrictions of the BendDAO protocol, which requires, for example, that the resale price be higher than the debt price.
These liquidations are likely to have a snowball effect. The multiplication of settlements will be accompanied by an increase in NFTs offered for sale on OpenSea. De facto, the starting price of the works will drop. Several NFTs were even sold below the minimum price. Multiple collections valued at billions of dollars at risk lose value.
At the same time, the frantic liquidations undermine the financial balance of the protocol. Unable to resell NFTs at the minimum price, the platform saw its available funds decrease these last days. On August 22, 2022, there are only approximately 15,000 Ether, or more than 23 million euros, left on the platform. Not all lenders can get their share back.
The platform reacts
Aware of the situation, the decentralized autonomous organization behind the BendDAO protocol is preparing to make significant changes. A proposal for adjustment was introduced by the co-founder of the organization. This proposal suggests modifying the parameters of forced sales.
“We are sorry that we underestimated how poorly NFTs could go through a bear market when setting the initial parameters. In the last few days we have received tons of comments and suggestions from the community”supports BendDAO.
In particular, the initiative plans to raise the liquidation threshold to 70% and reduce the protection period to four hours. The proposal is currently in voting process by the members of the organization. We bet the measures can prevent the NFT market crash.
Vote now! 🗳️ https://t.co/ZDcyzfRWoP
— BendDAO.eth (@BendDAO) August 22, 2022
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