Bored Apes Approaching Mass Liquidation On BendDAO, Can This Crash Entire NFT Market?

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A large num­ber of Bored Apes Yacht Club NFTs are approach­ing liq­ui­da­tion on the lend­ing plat­form Bend­DAO, can this cas­cade into a crash of the entire non-fun­gi­ble token market?

Bored Apes NFTs At Risk Of Liquidation As Floor Prices Drop More Than 50% Since All-Time High

Bend­DAO is a plat­form that lends out Ethereum loans to users against NFT col­lat­er­als. Gen­er­al­ly, users can avail up to 30–40% of the floor price of the non-fun­gi­ble token they are putting up on the platform.

How­ev­er, if the floor price of the dig­i­tal col­lectible in ques­tion drops to a cer­tain lev­el, the plat­form forcibly puts the token up for auction.

This liq­ui­da­tion lev­el is deter­mined by the “health fac­tor” of the NFT-backed loan. When the val­ue of this met­ric drops below 1, the token auto­mat­i­cal­ly enters into a 48-hour liq­ui­da­tion pro­tec­tion state where the own­er can choose to pay off the debt and reclaim the token.

If the user fails to clear the loan, the non-fun­gi­ble token is auc­tioned away, and the high­est bid­der gets to claim it.

Now, what’s going on with Bored Apes is that many BAYC hold­ers have bor­rowed ETH using the Bend­DAO lend­ing ser­vice, and a sig­nif­i­cant num­ber of these users are at a risk of liq­ui­da­tion cur­rent­ly as the floor prices of the col­lec­tion has been going down in recent weeks.

As the Bend­DAO health fac­tor alert list shows, a large amount of BAYC-backed debts are very near to going below the 1 threshold:

Bored Apes NFT Liquidation

Looks like many of these tokens are near to being locked into the 48-hour period | Source: BendDAO

An ana­lyst on Twit­ter has sug­gest­ed that a pos­si­ble con­se­quence of these BAYC liq­ui­da­tions can be a crash of the entire NFT market.

When these Bored Apes loans with health fac­tor val­ues close to 1 start going under, the result­ing liq­ui­da­tions will dri­ve the floor prices even low­er. This would mean more BAYC-backed debts will be pulled down into liquidation.

In this way, the liq­ui­da­tions can cas­cade togeth­er and dam­age the entire Bored Apes Yacht Club ecosystem.

As the ana­lyst points out, the month­ly vol­ume on OpenSea, the most pop­u­lar mar­ket­place for non-fun­gi­ble tokens, has been at a 12 month low recently:

Image

The volume in Ethereum has been quite low on the OpenSea platform in recent days | Source: Dune

This vol­ume is low enough that the entire NFT mar­ket could feel a cas­cad­ing effect by these large liq­ui­da­tions of the Bored Apes loans on BenderDAO.

BTC Price

At the time of writ­ing, Bitcoin’s price floats around $21.4k, down 12% in the past week.

Bitcoin Price Chart

The value of BTC has plunged down | Source: BTCUSD on TradingView
Featured image from Markus Spiske on Unsplash.com, charts from TradingView.com, Dune.com



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