2022-08-23 10:00:00

A Bank Run at NFT Loan Company BendDAO Leads another Effort to Prevent a Cash Crunch.

BendDAO, an NFT-collateralized crypto lending marketplace, attempted itself Monday after a nearly disastrous banking collapse, highlighting the risks of allowing individuals to borrow crypto cash against their Bored Apes.



BendDAO appears to be an old-school bank from a range: Some consumers deposit funds into the decentralized finance (DeFi) system, which then lends the funds out, with depositors receiving a portion of the interest charges. Those loans are collateralized but with a crypto twist: the collateral is images of monkeys, distorted heads, and other expensive NFTs.




Traders withdrew their funds with masse recently, triggering a bank run that reduced BendDAO’s balances to a Sunday bottom of 5 Ether (ETH) from over 10,000 wrapped ETH. This occurred after several BendDAO loans entered the network’s death zone last week, putting the NFTs used as collateral at risk of liquidation.



The pressure was partially relieved on Monday when some depositors returned to the system, and other borrowers paid their NFT-backed debts. That little respite allowed BendDAO’s community to reflect on the poor liquidation mechanisms that prompted DeFi’s current lending debacle. They are now scheduled to approve several modifications to the way BendDAO operates.



BendDAO tries to protect itself from defaulting borrowers by raffling off its NFT security in exchange for ETH. It is hard-coded to allow “only offers that make the DAO complete,” according to Nikolai Yakovenko, the owner of the NFT pricing site DeepNFTValue. In this manner, the institution will be capable of repaying depositors.



The problem escalates when nobody is prepared to bid at BendDAO’s prices. Cratering NFT marketplaces and concerns about locking up assets in BendDAO’s two-day bidding window became poisonous this weekend. BendDAO was forced to keep extremely illiquid ape JPEGs rather than the ETH required.



Owners of BendDAO’s native governing token BEND largely supported the motion on Monday afternoon, indicating that the motion will probably pass and enter into force Tuesday.




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