NFT Lending Platform Bend DAO Struggles to Remain Solvent

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  • NFT lending platform Bend DAO has proposed emergency changes to stop it from going under
  • Bend DAO has just 15 ETH to pay back some 15,000 ETH worth of loans
  • Reduced bear market liquidity has been blamed for the shortfall

NFT lending platform Bend DAO has proposed emergency changes to stop it from going under, following the drying up of the NFT liquidity pool. It was reported yesterday that Bend DAO has just 15 wrapped ETH (wETH) with which to pay back lenders, which is a huge issue considering some 15,000 ETH has been lent out. To save the protocol from a credit crisis, the team has suggested reducing the liquidation threshold for collateral from 85% to 70%, among other potential solutions.

Bend DAO “Underestimated” Bear Market Liquidity

The notion of creating a credit platform based on NFTs, which only really made a name for themselves last year, would seem to be in the least inadvisable if not downright crazy, and Bend DAO has found itself in a position where it is relying on the NFT market staying liquid through its first ever bear market in order to survive.

This, it seems, was wishful thinking (if thinking was actually involved anywhere along the line as opposed to mindless optimism), with Bend DAO spokesmonkey codeincoffee posting in a Bend Improvement Protocol (BIP) yesterday that “We are sorry that we underestimated how illiquid NFTs could be in a bear market when setting the initial parameters.” How on Earth they managed to work up any parameters at all for bear market NFT trading is astonishing, seeing as there HASN’T BEEN ONE, but anyway.

Codeinncoffee made a number of proposals that will mean nothing to people like me who have only the vaguest concept of how NFT lending works, but they included:

  • Adjusting the liquidation threshold to 70%
  • Adjusting the auction period to four hours
  • Adjusting interest base rate to 20%
  • Removing the first bid limitation of 95% of floor price

As usual with any kind of proposal made during a crisis there was a huge difference of opinion. Some suggested that a higher threshold would make bids more risk/reward attractive, bringing liquidity back into the market, while one user expressed grave concerns over a “real risk of liquidating people that signed up under different terms”.

Looking Out For a Bull Run

Whichever way the vote goes, there is every chance that Bend DAO will be skating on relatively thin ice through the bear market as the liquidity dries up even further, with its only hope being a new market cycle. However, with this unlikely until late 2023/early 2024 there is much careful skating to be done.

Good luck y’all.