BendDAO Holds Vote To Solve Liquidity Issues

Big changes need to come for the lending protocol.

We recently wrote about the ominous situation with BendDAO liquidity and Bored Apes. The NFT marketplace is now in a bit of a sticky situation. BendDAO works by allowing users to deposit NFTs of high value  and receive 40% of the assets floor price as an ETH loan, alternatively users who loan out ETH are given interest on those deposits.

The DAO of the platform must decide if a new policy is in the cards to handle the liquidation thresholds of the community. This comes after the treasury has been almost completely drained.

In a tweet by NFTStatistics.eth on Twitter it is explained how the treasury is completely out of ETH  after having 15K of ETH lent out.

The money that other users used to lend can no longer be pulled out and borrowers are required to pay 100% of the interest on borrowed ETH. After this tweet thread the wallet of BendDAO was able to get an influx of ETH and is currently sitting above 400 ETH.

In our previous article we also spoke of a Bored Ape NFT that was owned by the BendDAO co-founder also being in danger of liquidation. That co-founder who goes by the name CodeInCoffee.eth is the main purveyor of the community proposal. The co-founder put the community to a vote on Monday hoping to stabilize the finances of the DAO and restore confidence.

It would appear the incentives offered by the platform are a big misaligned as there are more borrowers than lenders at the moment and a lot of bad debt has occurred. CodeInCoffee apologized for not properly estimating the liquidity of NFTs in a bear market.

Apology post by BendDAO co-founder on the liquidation issue

Defaulting on a loan takes the NFT that was used as collateral and sets it up for auction with bids starting at 95% of the value of the NFT based on floor price. The new liquidation proposal would see that threshold slowly reduced over three weeks starting with 85% and ending at 70% by September 20.

This solution would be ideal as more issues arrive and other valuable NFTs such as Bored Apes, CryptoPunks, Azuki, CloneX and more could all be forcibly set up to be auctioned off. The reduction in the threshold would keep NFTs away from a sudden liquidation. The proposal also offers a change in auction time from 48 hours to 4 and sees interest rates increase for those that lend ETH. The idea is to make liquidation and acquisition more appealing to buyers as NFTs are very illiquid.

The vote appears to be successful as currently 99% of votes on the proposal have been in favor.

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