After stumbling through a near calamitous liquidity crisis over the weekend, NFT-collateralized crypto loans firm BendDAO attempts to steer itself back in the right direction.
This situation highlighted the drawbacks of allowing people to borrow crypto money against their Bored Apes.
BendDAO’s reserves were reduced to a Sunday low of five Ether (ETH) from over 10,000 Wrapped ETH due to depositors withdrawing their funds in large quantities as their confidence in the lender wanes.
By the end of last week, several BendDAO loans were in the platform’s danger zone, putting most of the collaterals held with NFTs at risk of being liquidated.
Monday saw some relief from the pressure as some depositors returned to the platform and other borrowers paid off their debts secured by NFT.
This provides a much needed leeway that enables BendDAO’s community to reflect on the flawed liquidation mechanics that have led to the recent lending debacle of DeFi. They will soon be able to approve a number of changes to how BendDAO functions.
BendDAO sells its NFT collateral for ETH in an effort to protect itself against failed loans. According to Nikolai Yakovenko, the owner of NFT price website DeepNFTValue, it is hard-coded to accept “only bids that make the DAO whole”. The protocol will be able to reimburse depositors in this manner.
When no one wants to bid at BendDAO’s prices, the trouble surfaced. This past weekend, cratering NFT markets and anxiety over locking up the assets in BendDAO’s two-day auction window escalated into an ugly situation.
Instead of holding the ETH that it required, BendDAO was left with the possibility of holding very illiquid ape JPEGs.
