Collateralized NFTs At Risk Of Liquidation As Floor Prices Fall

AUG 18, 2022 • 5 Min Read

Adrian Von Catangal

Disclosure: Members of our team may own NFTs or tokens related to the projects mentioned here. These statements are intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token or participate in a mint. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice.

 

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🚨 In Case You Missed It

  • Brian Armstrong, CEO of Coinbase, suggests they might hypothetically shut down ETH staking business if regulators ask them to censor Ethereum at the protocol level.
  • Bitbuy and Newton, crypto exchanges based in Canada, begin enforcing an annual purchase limit of $30k CAD for retail investors in certain jurisdictions.
  • cBridge, cross-chain bridge by Celer Network, asks users to stop using the service and cancel token approvals due to potential DNS hijacking of the frontend.
  • Fractional, protocol to trade small fractions of NFTs, rebrands to Tessera and announces a $20m Series A led by Paradigm.
  • Yearn Finance announces a design rebrand, spearheaded by its community.

📊 Bluechip NFTs Collateralized For ETH Loans With BendDAO

  • Since August 14, BendDAO has liquidated 12 NFTs collateralized for ETH loans. More such liquidations could be around the corner, if floor prices for bluechip NFTs keep going down.
  • BendDAO is a lending and borrowing protocol where users can collateralize NFTs and borrow ETH. Users can also lend ETH and earn the interest payments. Currently, 1,028 NFTs that are worth 30,641 ETH are deposited as collateral on the platform.
  • Out of these, 320 are considered to have risky health scores. This equates to 48% of BAYCs collateralized, 31% of MAYCs, 16% of Azukis, 42% of CloneXs, and 32% of Doodles.
  • The protocol classifies borrowers with health factors between 1 and 1.5 as risky and recommends they repay a part of their debt. When the health factor falls below 1, the borrower has 48 hours to repay their loan or risk losing their NFT.
  • In May of this year, BendDAO saw a sharp increase in the number of NFTs collateralized, as many BAYC and MAYC holders borrowed ETH from the protocol. Unfortunately, floor prices for BAYCs and MAYCs are down 54% and 69% respectively since May 1.
  • Floor prices for NFT collections listed on BendDAO are down between 18-39% in the last 30 days. If recent NFT market woes continue, falling floor prices may force borrowers to repay their debts or risk having their NFTs liquidated.
  • For more on NFTs, you can read our previous Delphi Daily report here.

Are NFTs Ded?

  • The question on everyone’s mind: “Are NFTs ded?” It is a sea of red, with almost all collections down from the previous week.
  • Two collections show relative strength in the bloodbath:
    • DigiDaigaku: a collection of 2,022 anime waifus by Limit Break, a gaming studio that has created many popular mobile games and is backed by high-profile investors including Paradigm, FTX & Coinbase. This collection was released free as a stealth mint and is now over 1E in floor price. No clear roadmap has been released. Buyers are likely speculating on the NFT as a proxy for Limit Break’s success.
    • The Potatoz:  Stake-to-win site is launching this week, with weekly prizes including more Potatoz and rare Memeland MVPs.
  • Markets fluctuate between optimism and hopelessness, swinging like a pendulum between extremes. Human psychology dictates that this will continue to hold true. I’m convinced that NFTs will pick up again when a strong new narrative pulls many new entrants into the space. It is just a matter of time. Until then, it is important to stay curious, stay engaged, and stay informed. That way, you’ll have the best chance to spot the next big thing early.
  • When prices are down, people get angsty and start arguing with one another. It also helps to pass the time while we wait for things to go up again. This week’s rumble was started by Cobie, who tweeted that NFTs are just “altcoins with pictures.”
    • He implies that NFTs are similar to the myriad of fungible casino coins launched in the past years whose only use case is trading and speculation. This is probably true for the many NFT projects that don’t add value to the space.
    • The counterpoint to this is that NFTs have real use cases. The ability to represent digital property rights and record provenance is powerful. We are already seeing this in art, collectibles, and games.
    • Full debate will happen on an UpOnly episode with heavyweights, including Punk6259 and YeahYeah.
  • For more, Delphi members can read our NFT Insights report here.

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