The repercussions of the credit crunch that affected several crypto exchanges are now being felt in the NFT space. Popular NFT-based lending platform BendDAO has now launched a vote to approve the emergency changes. This, in order to avoid what experts describe as a “death spiral” for the NFT market.
A draft proposal to improve the protocol, including some parameter changes, will be posted in the forum today and will take effect 24 hours after the vote, WAGMI hopes.
— CodeInCoffee.eth (@CodeInCoffee) August 22, 2022
In fact, an alarming stat recently obtained from Etherscan is that the BendDAO contract has run out of wrapped ether, leaving 0 ETH for payment to lenders.
Changes proposed by BendDAO
In the proposalco-founder of BendDAO who goes by the pseudonym CodeInCoffee said,
“We’re sorry we underestimated how illiquid NFTs could be in a bear market when setting initial parameters. Over the past few days, we’ve received tons of feedback and suggestions from community.After thorough review and discussion, it’s time to make a proposal to help ETH depositors build trust.
Here are the proposed short-term changes for Protocol 0
- Systematically adjust the liquidation threshold to 70%, weekly reduction of 5% from August 30, 2022
- Change auction period from 48 hours to 4 hours to improve auction liquidity
- Eliminate the first bid limit of 95% of the floor price to limit competitors at auction
- Adjust base interest rate to 20% to encourage redemption by NFT holders and help ETH depositors earn more interest
The BendDAO protocol uses Snapshot, an off-chain voting system, to achieve consensus. According to the Snapshot rules, 47 million veBEND or 20% of the total supply would constitute a quorum. A 75% approval would make the proposed changes possible.
In addition to protocol changes, BendDAO developers revealed user interface (UI) improvements. These include a section on the BendDAO auction page, a section where the number of floating bad debts in ETH would be displayed. This, along with information on the total interest generated for veBend holders and ETH depositors.
The BendDAO co-founder also outlined improvements to the protocol for the future. These include supporting collateral offerings on the platform, supporting down payment for auctions, and securing partnerships with other exchanges to list collateral.
When the first monkey fell
Panic struck on August 18 when the first Bored Ape Yacht Club (BAYC) NFT entered a liquidation auction after its floor price fell to 72, down 52% from its record high in May. 2022. What followed was a bank-run on BendDAO, impoverishing its portfolio by more than 99.9%.
As a result, hundreds of NFTs defaulted and entered the liquidation auction window, with no bids. Investors are hesitant to bid on defaulted NFTs as the prospect of bidding above debt and locking ETH for 48 hours seems risky.
It is important to note that a number of NFTs are approaching the liquidation window, even though their debts have not defaulted. This, due to the decline health factor assigned by BendDAO, the same depending on the collateral liquidation threshold.
As of this writing, poll results show that 60 million veBEND (97.13%) had voted in favor of the proposal, meaning the platform will move forward with the changes.