Bored Ape Yacht Club faces liquidations on BendDAO

The Ethereum floor price of the Bored Ape Yacht Club (BAYC) NFT collection has fallen to its lowest level since the beginning of the year, in the context of a continued collapse of the NFT market and the crypto-currency market in general. Like the MAYC they are facing liquidations on BendDao

NFTs follow the collapse of the crypto-currency market

Following the collapse of Terra’s algorithmic stablecoin UST in May and the bankruptcy filings of hedge fund Three Arrows Capital and crypto-lender Celsius Network in June, Ethereum lost 43% of its value. 

The floor price of BAYC correspondingly dropped by 36%, from 116 ETH to 65.5 ETH during the same period from May to June. 

However, as investors prepare to capitalize on Ethereum’s upcoming Merge, NFTs have broken step with the second-largest cryptocurrency by market capitalization

Between June 19 and August 20, Ethereum rose from an eight-month low of $995 to $1,634, while BAYC’s floor price has continued to drop. 

Zooming out, the NFT market as a whole has not fared well over the past 12 months. 

Bored Ape Yacht Club faces liquidations on BendDAO
Daily sales numbers (orange) have declined while the dollar value of the sales (white) remains stagnant. 

BAYC remains the biggest NFT collection by market capitalization, at 656,800 ETH-just above its nearest rival, CryptoPunks, with a total market cap of 655,000 ETH and floor price of 65.5 ETH.

However, it’s not all bad news for Bored Ape holders. Ethereum’s fluctuating price means that in dollar terms, the BAYC floor price is around $107,000 today; substantially lower than at the start of the year, when it was just under $256,000, but up from a low of just under $87,000, recorded in June.

BAYC and MAYC faces liquidations on BenDAO

We are all more or less used to decentralized lending protocols. In practice, these allow users to make loans, locking in cryptocurrencies as collateral in return.

If the value of the collateral decreases and approaches the value borrowed, the protocol will sell the collateral to repay the loan. This mechanism allows lending protocols to remain solvent and avoid bad debt.

To ensure the sustainability of the loans, the floor price of the NFT must be 30 to 40% higher than the value borrowed.

Néanmoins, les NFT sont tout aussi sujets aux variations de prix que les cryptomonnaies. Ainsi, la chute récente du marché crypto, a évidemment également impacté le marché des NFT. 

bad news

This is bad news for BendDAO, which may be experiencing a liquidation cascade. This was revealed by @CirrusNFT  in a Twitter thread.

Indeed, more and more NFT collateralized loans are approaching liquidation. Liquidation is governed by a health factor. It calculates the ratio between the value of the collateral and the value of the loan.

“If you let the health factor of your loan fall below 1, your NFT is auctioned off for 48 hours and sold to the highest bidder if you don’t repay the loan on time.”

This could prove to be dramatic for many well-known NFT collections.

As pointed out by CirrusNFT, 2.8% of BAYCs and 1.6% of MAYCs are currently deposited on the BendDAO protocol.

In the face of falling prices, the value of these NFTs has fallen dramatically since their ATH. As a result, several liquidations have already been recorded on the BendDAO protocol. A total of 15 MAYC are currently on sale, below the floor price on BendDAO.

“We have seen the first liquidations of mutants due to low health factor loans this week. Unless borrowers suddenly start paying off their loans en masse, there is a good chance we will see more in the near future.”

As we just saw, NFTs to be liquidated are being sold to the highest bidder. This action could result in a lower floor price for these collections.

liquidation on BendDao

If the floor price falls, then further liquidations can be triggered, lowering the floor price again.

Thus, it is possible to enter a liquidation spiral. In this case, each liquidation will generate more liquidations, inevitably dragging the floor price of these collections down.

On August 18, the first liquidation of a BAYC was recorded. BAYC #533 was put up for sale by the protocol at 68.4 ETH, almost 4 ETH below the floor price.

It remains to be seen whether the holders of these NFTs will be able to pay their loans on time, or whether these NFTs will be liquidated. If liquidation does occur, and this leads to a spiral of liquidation, it could mark the biggest price drop for Yuga Labs’ collections.

In parallel, the Bored Ape community could well see its own NFT exchange platform come into being. Indeed, Magic Eden wants to set up an NFT market that uses the APE token as a currency.