We apologize for underestimating how illiquid NFTs could be in a bear market when setting the initial parameters, the Bend DAO development team says.
Bend DAO, the creators of the decentralized nonfungible tokens (NFTs) borrowing and lending protocol, suggested new emergency measures on Monday in an attempt to stabilize the ecosystem.
On the same day, it was disclosed that the project had only fifteen wrapped Ether (wETH) worth $23,715 to compensate lenders. The mechanism was utilized to lend roughly 15,000 ETH. To protect the protocol from a credit crisis, the Bend Dao development team proposed lowering the collateral liquidation threshold from 85% to 70%.
Following that, the NFT auction period on its platform would be cut down from 48 to four hours. The requirement that the minimum bid price of NFTs on Bend DAO be set at 95% of the floor price on popular digital collectibles trading platform OpenSea would then be lifted. Loan interest rates are set to be reduced from 100% to 20%. Finally, the BendDAO treasury would be given the authority to cover bad debts and use revenue.
The crashing floor prices of NFTs in the bear market, even among prominent collections, have put many NFTs in jeopardy of liquidation as interest rates reach abnormally high levels. As interest rates on “debt-secured” NFTs have nearly tripled to nearly 100%, some users may find it more cost-effective to simply sell their digital collectibles (which are also decreasing in value) rather than repay the debt, resulting in bad loans.
Third, because NFT markets are not as liquid as a coin or token markets, there may be no bids during an NFT’s liquidation process, adding to the death spiral.
Before the credit issues, Bend DAO was considered a blue-chip NFT borrowing and lending platform. The current proposal will be voted on for 24 hours and has received the required quorum of 47 million veBend with 99.23% in favor.
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