Another cryptocurrency liquidity crisis is now underway at decentralized NFT lending protocol BendDAO.
What Happened: BendDAO gives out loans in Ethereum ETH/USD to users who deposit their NFTs on the platform. Last week, Benzinga reported that the price of a number of Bored Ape Yacht Club (BAYC) NFTs had fallen below their required margin and could potentially trigger a mass liquidation event.
These BAYC liquidations could possibly cause a death spiral for the BAYC ecosystem and NFT market as a whole, crypto analyst “doubleQ” warned at the time.
Over the last few days, BendDAO depositors rushed to withdraw their assets from the platform. The bank run drained the platform’s reserves from $29 million worth of ETH to under $25,000 over the span of 48 hours.
“We are sorry that we underestimated how illiquid NFTs could be in a bear market when setting the initial parameters,” said BendDAO founder ColdInCoffee in an Aug. 22 emergency proposal to adjust the liquidity threshold.
If the new changes come into effect, BendDAO would lower its liquidity threshold from 95% to 70% and shorten the liquidation window from 48 hours to four hours to improve liquidity for auctions. This gives the at-risk borrowers the chance to save their assets by repaying the loan and adding funds.
At the time of writing, more than 99% of DAO users had voted in favor of passing the proposal.
See Also: HOW TO BUY NON-FUNGIBLE TOKENS (NFTS)
Price Action: At press time, BendDAO’s native token BEND was trading at $0.0054, up 5% in the last 24 hours. The coin was up 8% against Bitcoin BTC/USD and ETH.
Photo courtesy: BendDAO
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