Bored Apes NFT is About to Take Down the Entire NFT Marketplace!
Bored Apes NFT is going down and taking the whole NFT marketplace with it!
A large number of Bored Apes Yacht Club NFTs are approaching liquidation on the lending platform BendDAO, can this cascade into a crash of the entire non-fungible token market? Bored Apes NFTs at Risk of liquidation as floor prices drop more than 50% since all-time high. BendDAO is a platform that lends out Ethereum loans to users against NFT collaterals. Generally, users can avail up to 30-40% of the floor price of the non-fungible token they are putting up on the platform. However, if the floor price of the digital collectible in question drops to a certain level, the platform forcibly puts the token up for auction.
This liquidation level is determined by the “health factor” of the NFT-backed loan. When the value of this metric drops below 1, the token automatically enters into a 48-hour liquidation protection state where the owner can choose to pay off the debt and reclaim the token. If the user fails to clear the loan, the non-fungible token is auctioned away, and the highest bidder gets to claim it.
Most Bored Ape holders at risk of being liquidated bought their ape pictures months ago when the floor price was 125 ETH. It’s since fallen to just above 70 ETH amid a broader NFT route. 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 issues lie 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 US$1,000 to nearly US$2,000 in the past month, lending services like BendDAO remain denominated in their originally lent token, causing some Bored Apes to be liquidated at higher dollar prices than where they were purchased. As more high-priced NFTs go “on sale” in the form of liquidation auctions, collectors have begun window shopping for discounted prices. Bids on auctioned NFTs on BendDAO must be within 5% of the collection’s floor price, regardless of how appealing it might be.
An analyst on Twitter has suggested that a possible consequence of these BAYC liquidations can be a crash of the entire NFT market. When these Bored Apes loans with health factor values close to 1 start going under, the resulting liquidations will drive the floor prices even lower. This would mean more BAYC-backed debts will be pulled down into liquidation. In this way, the liquidations can cascade together and damage the entire Bored Apes Yacht Club ecosystem. As the analyst points out, the monthly volume on OpenSea, the most popular marketplace for non-fungible tokens, has been at a 12-month low recently.