Dozens of Bored Ape Yacht Club Non-Fungible Tokens (NFTs) – bought with borrowed money – are dangerously close to a forced sale and there are fears it could trigger yet more liquidations. At issue is the creation of BendDAO, a peer-to-peer lending service that allows users to borrow Ether (ETH) against their NFTs. Customers can typically borrow 30-40% of the minimum price of the NFT collection or the minimum price to buy on the open market, with the NFT pledged as collateral. Minimum prices have dropped in recent months, so 45 of the 272 Bored Apes with BendDAO loans associated with them are now in the platform’s “danger zone” as the NFT used as collateral is up for auction.
Risks of Liquidation
In other words, the $5.3 million Bored Apes are at risk of liquidation. BendDAO is popular among NFT collectors, so the scale of any fire sale will be huge. The 272 Bored Apes tied to BendDAO represents 2.72% of the entire collection. The mass liquidation could also have ramifications for other NFT lending services, which rose to prominence last year as the NFT sector exploded in popularity. Bored Apes is also one of the most popular NFT collections, if not the most important, so leaks in this space could have far-reaching implications beyond Bored Apes.
BenDAO Statement and what will happen next
“Short-term fluctuations in the NFT minimum price are normal,” BendDAO said in a statement. “The consensus on blue chip NFTs was not created in a day and it will not collapse in the short term.” Most Bored Ape holders at risk of liquidation purchased their monkey photo months ago when the minimum price was 125 ETH. It’s since fallen to just above 70 ETH amid a broader NFT rout. Collectors who used their Bored Apes as collateral can simply pay off the loan plus interest to withdraw the NFTs from the site. Some of the issue lies in the mechanics of NFT trading, where floor prices will adjust as ETH’s price fluctuates against the U.S. dollar. Despite ETH’s climb from $1,000 to nearly $2,000 in the past month, lending services like BendDAO remain denominated in their originally lended token, causing some Bored Apes to be liquidated at higher dollar prices than where they were purchased.
Collectors are preparing to buy Bored Ape NFTs on Sale
As more high-priced NFTs go “on sale” in the form of liquidation auctions, collectors have begun window shopping for discounted prices. Bids for auction NFTs on BendDAO must be within 5% of the minimum price of the collection, no matter how attractive it is.