Good day everybody,

Welcome to CryptoGod-1's blog on all things crypto. Today we are going to take a look at how OpenSea, the flagship of NFT sales, has been doing of late. I recently did a post regarding BendDao and how some BAYC Holders are Facing Liquidation. There has been a knockon effect from all this, as I hinted at in that article, and below I will detail exactly what has happened.

What is OpenSea

As stated on their website, OpenSea is the world’s first and largest digital marketplace for crypto collectibles and non-fungible tokens (NFTs). Users can buy, sell, and discover exclusive digital items on sale throughout their extensive categories. Anyone can create an NFT and sell it on OpenSea, along with other marketplaces and networks, but OpenSea has been the market standard for all major NFT projects which have gone mainstream and into the public space.

OpenSea Volume

OpenSea has seen massive decline in its trading volume along with its number of active users and traders. Transactions are down, which would be a signal that people are losing interest and value in the blockchain based collectibles. During 2021 it was one of the most active parts of the Crypto and Blockchain space, with the high gas fees on Ethereum often attributed to the amount of transactions taking place on OpenSea. With the bull market of 2021 long and truly over, the hype and FOMO seems to have gone bearish along with the value of crypto. Volume has dropped by a massive 99% in the last four months on OpenSea!

To put that into perspective, on the 1st of May the trading volume on OpenSea was recorded at $2.7 billion in NFT transactions. On the 28th of August, it managed to process a mere $9.34 million worth of NFT's. In terms of active users, the site also saw a reduction with numbers of 24,020 on the 28th of August which represents roughly a third of its record numbers in May. In any other business losing 99% of your customers would spell the end of days, but in crypto often the same rules do not apply. 

As noted on the Fortune website, a spokesperson for OpenSea remarked that they have no fear with lower volume, stating:

“We’re playing the long game because we see what’s possible, so we’re not that concerned about short-term volatility,” the spokesperson said. “We always expected frothiness, hype, and deflation as the community and use cases evolve, the tech gets more sophisticated, and creators figure out how to build more utility into their projects.”

Is the Bubble Bursting?

Similar to the dot.com and housing bubbles, many had warned of a bubble bursting when it came to NFT's. The huge declines in volume on NFT marketplaces has coincided with the crashing crypto prices. Generally that was not an issue over the last year when prices fell as people buy and sell NFT's in crypto, generally Ether. While Ether has fallen roughly 59% to around $1,590 from its all time high, the floor price of the NFT's is where the real value lies. If you hold a rare NFT which is increasing in floor value, it means you are gaining more ETH even when the value of Ether is falling. Basically this is important because you can 10x or even 100x your amount of Ether by selling at the right moment, and then the value of Ether may not matter so much as you have so much more. Or you can hold your new amount of Ether and wait for its price to rise again (hopefully).

How does this impact NFTs? Well as part of the downturn the floor prices have also began to fall, and very sharply at that. Some of the most popular NFT collections have seen their floor price massively decrease, with Bored Ape Yacht Club, falling about 53% to 72.4 Ether (around $110,000) down from 153.7 Ether. Another popular NFT collection, CryptoPunks, is down 19% from its July peak. 

This downturn is leaving many investors in precarious situations, with many who invested during the peak seeing their investments in the red currently. That is however the risk of investing in anything.

BendDao Knock-on Effect

Before I get into this part, I would really recommend you check out my previous article on how some BAYC Holders are Facing Liquidation. That will give you a clearer understanding of the situation at play which I will not go into too much detail about it all again here. 

So the decentralized autonomous organisation BendDAO allowed owners of NFTs, especially of the BAYC collection, to take out loans with their NFTs as collateral. These loans were about 30-40% of the floor price value of the NFT at the time of the loan. So with the value of Ether and the floor price dropping, a lot of people are at risk of defaulting on their loan and losing their BAYC NFT in the process.

To counteract a rise in the value of Ether which ended up increasing the value of ETH-denominated loans in dollar terms, they had a vote to change the protocol's code in terms of making the NFT collateral more liquid. The issue is that while the value of Ether rose, the value of NFT's dropped, meaning the overall value of the collateral held by BendDAO has reduced significantly. 

This is leading a debt crisis for BendDAO, where borrows are unable to repay their loan in the dollar-denominated value and lenders are struggling to recover the amount they loaned out due to falling collateral values. The latest vote changed the liquidation threshold from 95% to 70%, meaning the array of BAYC NFTs which are set to go on auction may be sold for 70% of their current floor value. This will lead to more bids, which is what is anticipated by BendDAO in an attempt to shift their NFT collateral. 

The problem with this strategy is the knock-on effect it can have on the floor price of the NFTs, as once more are auctioned off for around 70% of the floor price then the floor price drops even further. The long term effect and domino effect this could have on the collection and the NFT space in general could be devastating, as BendDAO is determined to get its funds back in a market with limited liquidity.

I hope you enjoyed the article, and whether or not you are invested in NFT's I would love to hear your thoughts and opinions on whether the bubble has burst, and if you truly believe BendDao's recent vote will spell the end for NFT value and floor prices on blue chip collections.

Have a great day.

Peace. CryptoGod-1.

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