Many Bored Ape NFTs Are in Danger of Getting Liquidated as Borrowed Money Comes Back to Bite
Dozens of Bored Ape Yacht Club non-fungible tokens (NFTs) purchased with borrowed money sit perilously close to being forcibly sold, and there's worry that could trigger even more liquidations.
The problem is brewing at BendDAO, a peer-to-peer lending service that lets users borrow ether (ETH) against their NFTs. Customers can typically take out a loan equal to 30% to 40% of the NFT collection’s floor price, aka the minimum price to purchase one on the open market, with the NFT pledged as collateral.
Floor prices have tumbled in recent months, so much so that 45 of the 272 Bored Apes with BendDAO loans tied to them are now in the platform's “danger zone,“ when an NFT used as collateral is close to being auctioned off. In other words, $5.3 million worth of Bored Apes are at risk of being liquidated.
BendDAO is popular among NFT collectors, so the scope of any fire sale could be massive. The 272 Bored Apes tied to BendDAO represent 2.72% of the entire collection.
A mass liquidation event could also have implications for other NFT lending services, which have risen to prominence in the past year as the NFT industry has exploded in popularity. Also, Bored Apes are one of the most prominent NFT collections, if not the single most important one, so cascading liquidations in that space could have broad consequences beyond just the Bored Apes.
”The short-term fluctuations in NFT floor price are normal,” BendDAO said in a statement. ”Consensus on bluechip NFTs wasn’t built in a day, and it will not be collapsed in a short period of time.”
All these Apes close to liquidation on BendDAO.— Pete Fogden (@petroz_eth) August 19, 2022
Fire-sale coming soon 🤝 pic.twitter.com/mOKJpYW6nh
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 rout. 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 issue lies 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 $1,000 to nearly $2,000 in the past month, lending services like BendDAO remain denominated in their originally lended token, causing some Bored Apes to be liquidated at higher dollar prices than they were purchased for.
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.
There are now 19 mutant apes for sale in the BendDAO auctions, including a few beauties. M2 horns has a bid above floor. Gold grill has bids below. A few of these still have no bids. Bids must be within 5% of current MAYC floor. pic.twitter.com/24FHcLdrWA— NFTStatistics.eth (@punk9059) August 19, 2022
Franklin has 60 apes
One prolific NFT collector known as Franklin quickly became a focus of concern as the largest borrower on the platform. Franklin owns 60 Bored Apes and has taken out more than 10,000 ETH (around $17.5 million) in loans from BendDAO, though Franklin tweeted that he has since paid off the loans.
Like many services in the crypto world, Franklin’s case shows how influential whales can be to smaller participants, with the moves of certain individuals having the ability to put entire ecosystems in danger.
I currently owe 0 ETH to BendDAO and have 60 apes in my wallet. I have borrowed 10245.37 ETH from them, and have paid it off plus 9.13 ETH total interest. If I was in debt 10k ETH, I would not payoff and would be chilling on an island right now. Starting a short spaces now. pic.twitter.com/qEf2xInzoA— Franklin has 59 apes (@franklinisbored) August 18, 2022