Image source: OpenSea
A large number of Bored Ape Yacht Club NFTs bought with borrowed money are being sold almost by force, especially with liquidation news in the air.
Minimum prices fall by more than 50% from all-time high
BendDAO is a platform that lends Ethereum to users against NFT collateral, allowing users to use up to 30-40% of the minimum NFT price they place on the platform.
If the minimum price of a collection drops to a certain level, BendDAO can offer its NFT for auction.
The liquidation level is determined by the “health factor” of the loan guaranteed by NFT.
If the value of the metric falls below 1, the NFT will automatically enter a 48-hour liquidation protection state, where owners can choose to pay off the debt and recover the token.
However, if they fail to repay the loan, the NFT will be auctioned off to the highest bidder.
Media outlet Bitcoinist has released a list of health factor alerts showing that a significant amount of BAYC-backed debt is about to fall below Threshold 1.
In recent months, price floors have fallen and 45 of the 272 Bored Apes purchased with BendDAO loans are at risk.
Liquidation of BAYC and the NFT market
Taking to Twitter, one analyst hinted that the BAYC liquidations could be a precursor to the NFT market crash.
With BAYC lending teetering on the brink, liquidations could drive price floors down further, meaning BAYC-backed debt will go into liquidation.
The liquidations could spill over into each other and damage the entire ecosystem of the Bored Ape Yacht Club.
The analyst pointed out that the monthly volume on OpenSea has been at the lowest level in the last 12 months.
The volume is low enough to allow the entire NFT market to be cascaded by the large liquidations on BAYC loans on BenderDAO.
With news of the liquidation hanging over users’ heads, people are worried about NFT collector Franklin or Twitter user @franklinisbored.
Franklin is a prolific NFT collector who owns 60 Bored Apes with over 10,000 ETH or $ 17.5 million in loans from BendDAO. However, he said he had repaid the loans.
“I currently owe 0 ETH to BendDAO and have 60 apes in my wallet,” tweeted Franklin.
“I have borrowed 10245.37 ETH from them, and have paid it off plus 9.13 ETH total interest. If I was in debt 10k ETH, I would not payoff and would be chilling on an island right now. Starting a short spaces now.”
Franklin’s situation has become commonplace in the crypto scene, showing how influential “whales” can be to others, with the movements of some individuals endangering entire ecosystems.