The bear market makes crypto lending protocols go through hell. To realize this, just take a look at Three Arrows Capital, Celsius or Voyager Digital. However, while these companies have not been able to escape their disastrous fate, BendDAO seems to be able to ward off the fate. Even more interesting, the formula chosen by the startup to avoid the crisis offers an unexpected perspective for investors.
The critical situation of BendDAO
These days, BendDAO, a crypto lending protocol that accepts NFTs as collateral, is experiencing a liquidity crisis. More precisely, the platform has exhausted its reserve of ethers (ETH). It should be noted that last Sunday, it fell to a minimum of 5 weths when it held 18,000 a few days earlier. That said, even if this number has increased in the meantime, nearly 13,000 ETH are still stuck in the smart contracts from BendDAO, without the possibility of withdrawal.
At the same time, the fall in floor prices on OpenSea has placed borrowers in a delicate situation, with interest continuing to accumulate. On the other hand, on the whole, they are having difficulty selling the NFTs for which they have taken on debt. Indeed, at the moment, there are very few offers at auctions, regardless of the NFT collections offered.
The reason is that the configuration adopted by BendDAO is too demanding. First, it requires that the offers be greater than the borrower’s debt. Secondly, to place a bid, bidders must lock their ETH for 48 hours. This implies a significant risk when the debt is higher than the floor price.
An opportunity to seize
Given these circumstances, it is essential that BendDAO take measures to limit the massive accumulation of debts. With this in mind, one of the founders of the platform submitted a proposal to make some changes to the protocol.
First of all, he suggested that the liquidation threshold, which is currently 90%, be gradually reduced, at a rate of 5% per week, until it reaches 70%. This is to ensure that the NFTs under warranty are sold before the floor price is too low.
By next month, it is planned to liquidate more than 600 NFTs from the BAYC, MAYC, CloneX, Azuki and Doodles collections. This is a excellent opportunity for NFT enthusiasts and traders. That said, the number of short sales could increase over time, as interest accrues.
The proposal also mentions the reduction of the auction duration from 48 to 4 hours in order to improve liquidity. In addition, in order to increase the incentive for ETH creditors, the project provides for an increase in interest rates to 20%.
Yesterday afternoon, the BendDAO governance committee approved this proposal by 99%. This heralds a month of September with great potential. In addition, this reform will contribute to the survival of the lender, insofar as it will restore the platform’s cash flow.
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I came to blockchain out of curiosity and I stayed there out of passion. I was amazed by the possibilities it offers through its various use cases. With my pen, I hope to help democratize this technology and show how it can help make the world a better place.