Bankless: An Analysis of BendDAO's Run Crisis
Original source: Bankless
Compilation of the original text: Bai Ze Research Institute
Original source: Bankless
Compilation of the original text: Bai Ze Research Institute
BendDAO is an NFT lending protocol.
This credit crunch has thrown BendDAO into crisis, temporarily hamstrung lenders and borrowers on the project. The good news is that at the time of writing, the protocol has over 4,500 WETH in reserve, so the worst of the mayhem may be over.
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What is BendDAO?
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BendDAO is an NFT liquidity protocol, that is, an NFT lending project.
Borrowers can use the platform to lend ETH using 7 top collections of PFP NFTs, namely Azuki, BAYC, CloneX, CryptoPunks, Doodles, MAYC, and Space Doodles.
BendDAO accordingly uses a peer-to-peer model, in stark contrast to the peer-to-peer lending approach (where two people agree on terms to be negotiated), which initially came to prominence in the NFT ecosystem through projects like NFTfi.
This P2P approach supports three of BendDAO's main products: NFT-based Instant Loans (i.e. you don't have to wait for P2P negotiations), Collateral Listings (i.e. get up to 40% off reserve), and NFT Down Payments (i.e. buy NFT with 60% down payment).
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A run on BendDAO
The team later admitted that BendDAO "underestimated the illiquidity of NFTs in a bear market when setting initial parameters."
So, why did the NFT auction fail? Because the original BendDAO parameters required that the default liquidation bid be higher than the outstanding debt against the NFT and be at least 95% of the NFT's current reserve price. Due to the recent drop in the reserve prices of many NFTs, the debt on many BendDAO NFTs exceeded the reserve prices of these NFTs. Additionally, bids must be locked for 48 hours.
These requirements made default auctions less and less attractive for liquidators, so BendDAO accumulated more and more "bad debt" NFTs, which in turn spooked many lenders into pulling their funds.
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BendDAO Makes Emergency Adjustments
Ultimately, the adjusted outcome will make BendDAO's liquidation auctions more attractive to bidders, keeping ETH healthy back into the protocol to avoid bad debt.
Big win for investors: Over the next few weeks, we may see a surge in BendDAO liquidation auctions (depending on floor price performance) as it becomes easier to default on BendDAO positions. If you're in the market for a top-tier PFP NFT then keep an eye out for these auctions in the coming weeks as there may be some heavily discounted deals coming up.
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So can the project recover to the point where it can pay back all the lenders it still owes? At this point it seems possible, although BendDAO isn't necessarily out of the woods either. On the other hand, recent discussions surrounding BendDAO's "infection" to other NFT lending projects and the broader NFT ecosystem have been greatly exaggerated.
Summarize
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Summarize
At the very least, BendDAO will be an important cautionary tale for other NFT lending projects/liquidity projects going forward.
risk warning:
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