NFT lending protocol BendDAO initiated a brand new proposal to reduce the liquidity threshold amid insolvency concerns.
To protect the protocol from an insolvency crisis, the BendDAO development team proposed lowering the collateral liquidation level from 85% to 70%.
Adjust the Liquidation Threshold to 70% as follows:
- Update to 85% August 30th, 12 pm UTC
- Update to 80% September 6th, 12 pm UTC
- Update to 75% September 13th, 12 pm UTC
- Update to 70% September 20th, 12 pm UTC
Following that, the NFT auction duration on its platform would be lowered from 48 to four hours. The condition that the minimum bid price of NFTs on BendDAO be set at 95% of the floor price on OpenSea would then be lifted.
Loan interest rates are planned to be reduced from 100% to 20%. The BendDAO treasury would be given the authority to cover bad debts and utilize revenue.
The current proposal will be voted on for 24 hours and at the time of writing has received the required quorum of 59 million veBend with 97.09% in favor.
BendDAO allows NFT holders to use their assets as collateral to borrow ETH. When an NFT is deposited into BendDAO, the user can borrow up to 40% of the collection’s floor price in ETH.
NFT depositors, on the other hand, may have their holdings liquidated if the floor price falls below a particular threshold. Anyone with ETH can deposit their assets into the system in order to capture yield.
BendDAO claims to give a 77.54% APR on ETH deposits, with 73% paid in ETH and the remaining 4.53% paid in their BEND token.
The yield is generated by NFT holders paying interest on ETH borrowed against their NFTs. The interest rate on these ETH loans, according to the protocol’s webpage, is 93.96%.
NFT Holders are disincentivized to repay their loans as interest rates rise. As a result, many have already defaulted, and their NFTs have been sold.
While NFT depositors may lose their NFTs if the value of their collection falls, individuals who invested ETH into the protocol may also lose if the protocol does not reclaim enough funds to reimburse them.
When the floor price for a deposited NFT falls too low, it is auctioned off on BendDAO. The protocol demands that bids be more than the borrower’s debt and at least 95% of the NFT collection’s floor price. In addition, the bidder must lock up ETH for 48 hours.Â
This means that if the borrower’s debt is too high, there is little motivation for someone to put a bid, and as a result, many NFTs receive no offers once they go up for auction. If a large number of NFTs are liquidated at once, the market will crash.
Some users may find it more cost-effective to just let go of their NFTs rather than paying back the debt as interest rates on debt-secured NFTs have surged to around 100%.
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