big liquidation NFTs The market could be on the horizon. web3 rendering protocol Ben Dao It is attracting hordes of NFT holders to hold irreplaceable assets as collateral and take ETH loans. Liquidation fears escalated when BAYC’s whale (Bored Ape Yacht Club) borrowed over 10,000 ETH from the platform.
Currently, $59 million (32,267 ETH) worth of NFTs are being used as collateral on BandDAO and increasing by the hour. Almost 85% of the loans are collateralized by BAYC and MAYC (Mutant Ape Yacht Club).
What is Ben Dao?
BendDAO is a web3 lending protocol for NFT holders. ethereum (ETH) holders can deposit assets on the platform to provide liquidity and earn interest (8.15% APR). NFT holders, on the other hand, can borrow ETH against non-fungible assets. According to the creators of the platform, this will increase the usefulness of digital assets.
In a broader sense, non-fungible tokens simply provide a sense of ownership of digital art. However, BendDAO allows users to actually receive monetary benefits through such assets rather than just changing ownership.
Users can borrow up to 40% of the minimum price of the collection. However, once the floor price approaches the value of the loan, the platform can liquidate her NFTs and put them up for auction. In this case, the borrower is given only 48 hours to pay off the loan. Otherwise, the assets will be liquidated.
Why is the NFT market likely to crash?
The price of non-fungible tokens depends on market volume. As the overall volume drops, so does the floor price for all collections. The lower the floor price, the more likely you are to get close to the loan amount and the more likely you are to liquidate.
BendDAO calculates the probability of liquidation through a term called “”.health factor‘. This represents the safety of the user’s deposited NFTs relative to her ETH value loaned. Once the health factor reaches 1, the deposited assets will be auctioned by the platform. There are currently 45 BAYCs on the platform with a health factor of less than 1.2.
Liquidation cascades can occur when high-value NFTs reach a low health factor on BendDAO. What’s wrong? The daily volume of non-fungible tokens has dropped significantly on OpenSea, indicating that floor prices are also about to drop.
Overall DeFi The market is already suffering from liquidation concerns after the popular cryptocurrency lending platform. Celsius goes bankrupt last month. Another similar event in the NFT market could have devastating effects on the industry.
