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NFT Lender BendDAO’s Liquidity Takes A Test As ETH Reserves Fall
If you’re borrowing against your Bored Apes, you may want to keep your eyes peeled. Liquidity on major NFT lending platform BendDAO has been under a major stress test over the past 24 hours, as ETH levels appear to be under strain. At time of publishing, the BendDAO ETH reserves have been replenished, and sit north of 800 WETH, however the lender was noted by many of recording lows in the liquidity vault at just 5ETH – a dangerously low level for a lending platform of it’s nature.
BendDAO has emerged onto the scene rapidly and has provided a bit of spice to the NFT conversation, allowing users to leverage their blue-chip NFTs as collateral; let’s take a look at what we know from the lender’s WETH reserves, what we’ve heard thus far from the BendDAO team regarding the matter, and where we go from here.
Liquidity On High Alert: How It Happened
The often-intuitive PROOF Collective research lead @NFTStatistics.eth first released a report that gained traction throughout Crypto Twitter and the NFT community surrounding the issue, highlighting the topic when the BendDAO liquidity was down to just above 12 ETH:
Ok. Long thread on the BendDAO situation:
1) They’ve run out of ETH. There is just 12.5 WETH in the contract.
2) What does this mean? People who lent money to others via BendDAO to buy NFTs on leverage can’t pull their money out. About 15,000 ETH was lent.
— NFTStatistics.eth (@punk9059) August 21, 2022
This conversation spurred into broader discussions around how the market reacts; straightforward economics tells us that the threat of impending 100% APR would be powerful enough for many users to return collateral and replenish the DAO’s liquidity reserves. However, a downward spiral could catch on if the general market sentiment is low on NFTs, as users will be less inclined to return their collateral if their belief is that the market will continue to move downward.
BendDAO responded quickly to the liquidation concerns, expressing that they “underestimated how illiquid NFTs could be in a bear market when setting the initial parameters” and proposing an emergency proposal to the DAO in order to improve liquidity parameters. This included adjusting the auction period, interest rate bases, liquidation thresholds, and intent to continue dialogue around addressing bad debts. That vote is likely to pass.
It's been an interesting ride in recent days for holders of BendDAO's $BEND token. | Source: BEND-USDT on TradingView.com
How We Got Here
BendDAO has been feature to plenty of topics of conversation among NFT circles as of late, seemingly bridging a gap between DeFi and NFTs; the big bet here is on whether or not BendDAO’s decision making through upcoming proposals will refine the mechanics of the lending process. If so, the protocol stands to be an important piece of a growing ecosystem that will still need to prove it’s ability to withstand big storms, but one that could still see substantial community engagement and interest.