BendDAO may see BAYC floor price drop due to cascade liquidation, new proposal may be risky

Aug 23,2022
KingData News: Blockworks Research tweeted an analysis of the reasons why BendDAO affected the decline in BAYC floor prices. It is noted that the cascading liquidation mechanism designed by BendDAO may be problematic. Cascading liquidations occur when the auction decreases the market value of the underlying collateral, leading to another loan reaching the liquidation threshold. The domino effect of auctions forcing more liquidations can drive the underlying's price down tremendously. With BendDAO, when the valued borrowed surpasses 90% of the floor price for an NFT, the NFT is auctioned off. 28 bored apes and 48 mutant apes have been liquidated and auctioned in the last 3 days! 3 more BAYC and 12 MAYC are in auction now. The liquidations have led BAYC to a 30 day volume high and a small but significant drop in the floor price. MAYC has seen a similar result. If the cascading liquidations continue to drive the floor prices down another 20%, all of those NFTs will be liquidated. BendDAO has a stipulation that bids in their liquidation auctions must be a minimum 95% of the floor price. This helps curb some risk of a death spiral but leads to depositors potentially getting stuck with NFTs that have a falling value (bad debt).
NFT mortgage lending agreement BendDAO has seen a large number of liquidation auctions and the platform is experiencing a severe liquidity crisis. This indicator provides an update on the BendDAO liquidity crisis.