The popular Bored Ape Yacht Club (BAYC) NFTs that were bought with borrowed money can be “forcibly” sold, potentially triggering more liquidation. The problem is at BendDAO, a peer-to-peer lending service that allows users to borrow Ether against their non-fungible tokens. Customers can take out loans equal to 30% to 40% of the NFT collection’s floor price, or with the minimum price to buy one on the open market. The NFT can be pledged as collateral.
However, in recent months the floor prices have plunged so much so that 45 of the 272 Bored Apes with BendDAO loans tied to them are in the platform’s “danger zone”. It should be noted that when an NFT is used as collateral, it’s close to being auctioned off. As such, $5.3 million worth of Bored Apes are at risk of being liquidated. The 272 Bored Apes with BendDAO make up 2.72% of the entire collection.
Experts say a mass liquidation event could impact other NFT lending services which have come to prominence over the past year when the NFT industry boomed. And BAYC is one of the most prominent NFT collections, so such an event would have broad consequences beyond just the Bored Apes. BendDAO, in a statement, said that short-term fluctuations in NFT floor price are normal and that consensus on blue chip NFTs wasn’t built in a day, and it wouldn’t collapse in just one day.
However, most Bored Ape holders are at risk of being liquidated. They had purchased their NFTs months ago when the floor price was 125 ETH. Since then, it has fallen t just above 70 ETH. Collectors who used their BAYC NFTs as collateral can just pay off the loan with interest to withdraw their Apes from the site.