NFT lending platform BendDAO runs out of reserves due to rising defaults – 24/7 Wall St.

BendDAO NFT Lending Protocol has announcement that it will update protocol parameters in the face of soaring debt and depleting reserves. The protocol experienced a “bank run” over the weekend as more than 15,000 Ethereum was withdrawn from its contract within 48 hours, leaving only 535 wETH to repay lenders.

How does BendDAO work?

BendDAO is a decentralized peer-to-peer NFT lending platform on the Ethereum blockchain. The project allows NFT holders to borrow ETH using their NFTs as collateral. It also allows depositors to provide ETH liquidity and earn relatively high interest. Leveraged NFT trading relies on instant loans backed by NFT.

Holders who want to use their NFTs as collateral can instantly get Ethereum loans of up to 40% of the NFT floor price, which is the minimum price to buy an NFT from a collection on the open market. Instant liquidity is provided by the instant NFT-backed loan. A homeowner can get their NFT back after repaying the loan and interest.

Borrowers can list collateral directly on the NFT loan protocol. “The balance after deducting debt with interest will be transferred to the borrower (seller) after the transaction,” according to the project’s GitBook.

BendDAO is running out of ETH

NFT researcher pseudonym NFTStatistics.eth has revealed that BendDAO has run out of wrapped ether (wETH) in its contract. Currently, the protocol contract only has around 535 WETH to pay the lenders, with around 15,000 ETH remaining to be paid to the lenders.

In a Twitter thread, the researcher noted that users “who have lent money to others through BendDAO to purchase leveraged NFTs” will not be able to access their funds now. Additionally, NFT borrowers on the platform are now expected to pay 100% interest on the ETH they have borrowed, as debt to NFTs is on the rise.

What makes the situation even worse is that the majority of NFTs that have been used as collateral and defaulted currently have no bids. Additionally, a dozen other NFTs are currently on the platform’s alert list, meaning they are on the verge of defaulting and being auctioned off. NFT borrowers apparently would rather default than pay their debt due to falling NFT floor prices and rising debt and interest rates.

The researcher noted that some of the defaulted NFTs, which include several Bored Apes and other prime NFTs, have no offers because “BendDAO requires offers greater than the ‘debt’ the borrower owes AND above the floor of OpenSea”. Additionally, users must lock their ETH for 48 hours to open an offer.

“Currently, these NFTs are hitting BendDAO auctions and not hitting exchanges. Why? Because no one is bidding on them. The DAO gets stuffed with them and holds them back. Eventually, the DAO needs ETH from these NFTs to pay lenders who cannot withdraw ETH.

BendDAO can either hold the NFTs and wait for price floors to recover, or change their protocol to allow users to bid below full debt or at a greater discount from the price floor, the researcher said.

Meanwhile, the BendDAO co-founder said the protocol will post a proposed change to the terms. “The drafting of a proposal to improve the protocol, including some parameter changes, will be posted on the forum today and will take effect 24 hours after the vote on hopefully WAGMI,” he said.

This article originally appeared on The Tokenist

Sponsored: Tips for Investing

A financial advisor can help you understand the pros and cons of investment properties. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

Investing in real estate helps diversify your portfolio. But expanding your horizons can come with additional costs. If you are an investor looking to minimize your expenses, consider checking out online brokers. They often offer low investment fees, which helps you maximize your profits.

Comments are closed.