Several owners of Bored Ape’s Precious Yacht Club (BAYC) and Non-Fungible CryptoPunks (NFTs), who used them as collateral for loans in Ether
They failed to pay their debts. The situation could lead to the NFT sector’s first massive liquidation event.
BAYC “Death Vortex” featured?
DoubleQ, founder of Web3 launchpad Double Studio, says lending service BendDAO can liquidate up to $55 million in NFTs to redeem its loans, lest the so-called “health factor” for these debts fall below 1.
Notably, the floor price of the NFT pool is important in determining the health factor. BendDAO offers 30% – 40% of the minimum price of NFTs as loans. But the protocol sells an NFT if its minimum price is very close to the amount borrowed – which is the liquidation threshold, as shown below.
BendDAO’s NFT filtering protocol. Source: official website
Meanwhile, BAYC’s base price fell from 153.7 ETH in May to 69.69 ETH in August – a drop of nearly 55% in three months. Meanwhile, the health factor for at least 20 loans with BAYC as collateral fell to 1.1 as of Aug. 19, BendDAO data shows.