The ripples of the credit crisis affecting several cryptocurrency exchanges are now being felt in the NFT space. Popular NFT-based lending platform BendDAO has now started a vote to approve the emergency changes. This, in an attempt to avoid what experts describe as a “death spiral” for the NFT market.
By writing a proposal to improve the protocol, including some changes to the parameters, it will be posted in the forum today and will be valid 24 hours after the vote, we hope that WAGMI.
– CodeInCoffee.eth (@CodeInCoffee) August 22, 2022
In fact, an alarming statistic recently obtained by Etherscan is that the BendDAO contract has run out of Wrapped Ether, leaving 0 ETH for payment to lenders.
The changes proposed by BendDAO
In the proposalthe co-founder of BendDAO who goes under the pseudonym CodeInCoffee She said,
“We are sorry we underestimated how illiquid NFTs could be in a bear market when we set the initial parameters. Over the past few days, we’ve received tons of feedback and suggestions from the community. After a full review and discussion, it’s time to make a proposal to help ETH depositors build trust. “
Here are the proposed short-term changes for Protocol 0
- Systematically adjust the settlement threshold to 70%, weekly reduction of 5% starting from 30 August 2022
- Change the auction period from 48 hours to 4 hours to improve liquidity for auctions
- Eliminate the first bid limitation of 95% of the starting price to limit competitors at the auction
- Adjust base interest rate to 20% to encourage repayment by NFT holders and help ETH depositors earn more interest
The BendDAO protocol uses Snapshot, an off-chain voting system, to arrive at a consensus. According to the Snapshot rules, 47 million veBENDs or 20% of the total supply would constitute the quorum. A 75% approval would make the proposed changes possible.
In addition to the protocol changes, the BendDAO developers revealed user interface (UI) improvements. These include a section on the BendDAO auction page, one where the number of bad debt floating in ETH would be displayed. This, together with information on the total interest generated for the holders of veBend and depositors of ETH.
The BendDAO co-founder also outlined the protocol improvements for the future. These include support for guarantee offers on the platform, support for down payments for auctions, and guaranteeing partnerships with other exchanges in order to list the guarantee.
When the first monkey fell
The panic erupted on August 18 when the first NFT Bored Ape Yacht Club (BAYC) entered a liquidation auction after its low price dropped to 72, down 52% from its all-time high in May 2022. What followed was a bank run of BendDAO, running out its portfolio of over 99.9%.
As a result, hundreds of NFTs defaulted and entered the liquidation auction window, with no bids. Investors are reluctant to bid on defaulting NFTs because the prospect of bidding on debt and freezing ETH for 48 hours seems risky.
It is important to note that a number of NFTs are approaching the liquidation window, even though their debts have not defaulted. This, due to the decline health factor assigned by BendDAO, with the same according to the settlement threshold of the collateral.
Voting figures
At the time of writing, poll results showed that 60 million veBEND (97.13%) had voted in favor of the proposal, which means that the platform will move forward with the changes.
