Good day everyone,
I hope you are all well and had an excellent weekend, welcome to CryptoGod-1's blog on all things crypto. Today I will be doing a quick write up on the recent news regarding how the falling crypto prices could have a detrimental impact on Bored Ape Yacht Club (BAYC) holders who have taken a loan against their asset.
What Happened
Many holders of BAYC, and even Crypto Punks, have in the past decided to use them as collateral to take out loans in ETH, which at the time most likely seemed like a wonderful idea given the high value of their NFT asset(s). The platform BendDAO is one such platform which offered these loans against the collateral of a BAYC NFT, and has as much as 3% of the entire BAYC collection in holdings due to this loans. Customers of BendDAO were given around 30% to 40% of the NFT collection’s floor price as a loan against their NFT, with apparently as much as much as $55M worth of Bored Ape and CryptoPunks NFTs at risk of liquidation amid a debt crisis.
How Can they Loose Their NFT?
Simply put, users who took out the loans have not paid them back. This equates to a total of 45 out of the 272 Bored Apes with BendDAO loans tied to them which are within the platforms “danger zone.“ This basically means the value of the NFTs are becoming too close to the value that was given to customers in loans, seeing as the floor price of BAYC has fallen from 153.7 ETH in May to 69.69 ETH in August, nearly 55% drop from its all time high over the last three months. The major worry within the industry is the impact a liquidation of the BAYC's held by BendDAO could have on the NFT space at large, with BAYC being one of the most prominent collections available. The wider impacts on other NFT lenders along with the potential of a death spiral for the BAYC ecosystem and NFT market as a whole, seeing as BendDAO also has CryptoPunks and Doodles. Add to this that Opensea is seeing its volume over the last twelve months at the lowest it has ever been and the signs are ominous.
What Happens to the NFTs
Users have 48 hours from when their asset enters the "danger zone" to repay the loan against their NFT, or BendDAO will be forced to auction the asset off to get their ETH back. Bids can be placed on the assets, and they must be more than 95% of the floor value and higher than the debt amount. This could lead to opportunities for people to get their hands on a BAYC NFT for cheaper than the existing floor price, but at the same time there is always the risk the floor price could drop further due to the liquidations. Currently 45 of the 272 Bored Apes with BendDAO are close to being auctioned off, meaning $5.3 million worth of Bored Apes are at risk of being liquidated. It will be interesting to see what happens in terms of the holders of those BAYC, as potentially some got their Apes for a lot less than the current floor price of the collection, meaning they might be happy to let their asset be liquidated. At the same time, with the value of ETH having rising, and since fallen slightly, over the last month, the dollar to ETH value of what they initially purchased and got on loan could be worth a lot more now. It will be interesting times ahead.
Hopefully you're not impacted by any of this, and if so make sure you pay off your loan to ensure your NFT does not get auctioned off in liquidation.
Peace. CryptoGod-1.
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