Happy Dad Unleashes Bored Ape-Inspired Flavored Hard Seltzers.Santiment – ‘Dogecoin, Shiba Inu Whales Sold’ – Next Big Meme Coin.If they can supersede this challenge they will look strong – but the entire episode has been damaging for the industry of pledging NFTs as collateral. In a best case scenario, someone will simply buy them – it appears as though something in the middle is the most likely outcome.īend DAO will most probably end up selling NFTs for slightly less than they are worth in order to be able to repay as much of the debt as possible. In a worst case scenario, Bend DAO would not be able to find any bids for these specific NFTs and would be forced to sell them below market price on OpenSea because they are desperate for liquidity. If the NFTs cannot be sold immediately then Bend DAO because the holder of last resort – Bend DAO could potentially come to own dozens of NFTs, since they can’t catch bids. If debt comes to exceed the value of the collateral, the NFTs will be liquidated. This is not possible with NFTs, given that each NFT requires a specific offer from another individual – if there is no offer for an NFT at a specific price then the price continues to fall – if the collateral continues to fall below the value of the deposited collateral then the entire protocol breaks, and high APRs for borrowers can’t always fix this issue. When the collateral is function and there is to be a liquidation, for example on Aave or Compound, it is easy for arbitrageurs to automate flash loan bots to quickly enact the liquidation. One of the main issues with a lending protocol focused around NFTs is the fact that liquidations are far more difficult to enact than when the collateral is fungible. The DAO is left with a lot of NFTs and not enough ETH One of the reasons that there have been no bids on NFTs that have already defaulted is because of the way the default process works: Bend DAO requires the bid to be worth more than the debt of the borrower and higher than the floor on Opensea. Interestingly, these NFTs are struggling to find a bid, which is hugely problematic: if the NFTs can’t be effectively liquidated then not only does the DAO not have any liquid cashflow, but they also can’t claim that their system actually works. MAYC, BAYC, CloneX and Doodles are all collections that have had liquidations on Bend DAO in the last 24 hours. There are many NFTs that have already defaulted on their debts. No bids on NFTs that have defaulted already They are extremely volatile in price (Bend DAO only lists blue chips), and not liquid enough: with a fixed cap and lack of fungibility, there is no way that they could be liquid enough. The second issue, and perhaps the more important issue, is that it demonstrates that NFTs do not make ideal collateral. The first reason that this is problematic is because it is symptomatic of the lack of liquidity, and lenders will struggle to get their ETH back – lenders are earning an extremely high yield on the ETH they have lent out, but they might not get much of it back. This is problematic for a variety of reasons. Since there has been so much borrowed against NFTs and there still remains a lot leverage on Bend DAO, it is extremely expensive for borrowers to keep their debt positions open.Ĭurrently, borrowers are paying interest rates in excess of 100% just to keep their loan positions open. There is not enough ETH left for all those who are lenders to withdraw, and this is creating a lot of uncertainty regarding the sustainability of their model. However, in the case of Bend DAO, it seems as though their time is up. One of the main selling points of DeFi ought to be that it is seamless and doesn’t suffer from central points of failure.
This is a huge problem, because over 15,000 ETH was lent to those who posted NFTs as collateral. Bend DAO runs out of ETHīend DAO has now almost completely run out of ETH, meaning that those who lent ETH to the protocol cannot withdraw even if they want to. In this case, they will lend (or make a loan) to those who have pledged their Apes, Doodles, or Azukis as collateral. If someone wants to use Bend DAO to earn interest, they also have the opportunity to become a lender. This is impressive, but even more impressive when one considers that the price is now down 96% from all time highs. The community has grown alongside the rise of NFTs and the fully diluted market cap is currently worth $50m. The DAO has been hugely popular and, until now, has functioned without any cause for concern.
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