“We regret that when setting up the initial parameters, we underestimated how illiquid NFTs can be in a bear market,” says the Bend DAO development team.
On Monday, the developers of the decentralized non-fungible token (NFT) borrowing and lending protocol Bend DAO proposed new contingency measures to stabilize the ecosystem. On the same day, it was revealed that the project only had 15 wrapped ethers (wETH) worth $23,715 to pay back creditors. Approximately 15,000 ETH has been awarded through this mechanism. To save the protocol from a credit crunch, the Bend Dao development team proposed limiting the liquidation threshold for collateral from 85% to 70% of the loan value.
The duration of the NFT auction on its platform will then be reduced from 48 to four hours. The requirement that the reserve price of NFTs on the Bend DAO be pegged to 95% of the reserve price on the popular digital collectibles trading platform OpenSea will then be lifted. Interest rates on loans should be reset to 20% from the current 100%. Finally, the BendDAO treasury will be empowered to cover bad debts and use the proceeds.
The drop in NFT floor prices in a bear market, even for respectable collections, has put many NFTs in danger of being liquidated as interest rates have risen to abnormal levels. As interest rates on “collateralized debt” NFTs have skyrocketed to nearly 100%, some users may find it more economical to simply discard their digital collectibles (which are also depreciating in value) rather than pay off the debt, resulting in bad loans. . Thirdly, the NFT markets are not as liquid as the coin or token markets, which means that no stakes can be placed during the NFT liquidation process, further exacerbating the death spiral.
Prior to lending, Bend DAO was considered a top-notch lending and lending NFT platform. Voting on the current proposal lasted 24 hours and reached the required quorum of 47 million veBend with a 99.23% yes vote.