A large number of Bored Apes Yacht Club NFTs are approaching liquidation on the BendDAO lending platform, can this turn into a crash of the entire non-fungible token market?
Bored Apes NFTs at risk of liquidation as price floors drop more than 50% from all-time high
BendDAO is a platform that lends Ethereum loans to users against NFT collateral. Typically, users can benefit from 30-40% of the floor price of the non-fungible token they put up on the platform.
However, if the floor price of the digital collectible in question falls to a certain level, the platform forcibly puts the token up for auction.
This level of liquidation is determined by the “health factor” of the NFT-backed loan. When the value of this metric falls below 1, the token automatically enters a 48-hour liquidation protection state where the owner can choose to repay the debt and reclaim the token.
If the user fails to repay the loan, the non-fungible token is auctioned off and the highest bidder can claim it.
Now, what’s happening with Bored Apes is that many BAYC holders have borrowed ETH using the BendDAO lending service, and a significant number of those users are currently at risk of liquidation, as collection price floors have declined in recent weeks. .
As the BendDAO health factor alert list shows, a large number of debts backed by BAYC are on the verge of falling below threshold 1:
Looks like many of these tokens are near to being locked into the 48-hour period | Source: BendDAO
An analyst on Twitter suggested that a possible consequence of these BAYC liquidations could be a crash of the entire NFT market.
When those Bored Apes loans with health factor values close to 1 start to sink, the resulting liquidations will drive the price floors down even further. This would mean that more debt guaranteed by BAYC would be put into liquidation.
In this way, liquidations can follow one another and damage the entire ecosystem of the Bored Apes Yacht Club.
As the analyst points out, monthly volume on OpenSea, the most popular marketplace for non-fungible tokens, recently hit a 12-month low:
The volume in Ethereum has been quite low on the OpenSea platform in recent days | Source: Dune
This volume is low enough that the entire NFT market can feel a cascading effect by these large Bored Apes loan liquidations on BenderDAO.
At the time of writing, the price of Bitcoin is hovering around $21,400, down 12% in the past week.
The value of BTC has plunged down | Source: BTCUSD on TradingView
Featured image from Markus Spiske on Unsplash.com, charts from TradingView.com, Dune.com