Aug 18, 2022 1 min read

Looming BAYC Liquidation Cascade?

Looming BAYC Liquidation Cascade?
Bored Ape Yacht Club #8861

BendDAO, an NFT peer-to-pool lending application, allows users to take out Ethereum loans instantly using NFTs as collateral while still receiving airdrops for those NFTs. Each loan on the platform receives a health score that indicates how close the loan is to liquidation. When a loan is liquidated, the NFT collateral is sold via an auction.

As the floor price of an NFT used as collateral declines, the "health factor" of the loan on BendDAO also declines, unless the borrower pays off some of their loan which improves the loan's health score. If a loan's health factor falls below 1, the borrower has 48 hours to raise the loan's health score or their NFT collateral will be liquidated.

At the time of this writing, there are 41 Bored Ape Yacht Club loans on BendDAO with a health factor of 1.1 or lower. If the liquidation trigger is reached for multiple Bored Apes, it could cause the collection's floor price to drop, which could in turn cause more liquidations on BendDAO, resulting in self-perpetuating cycle known as a liquidation cascade.

The potential of this liquidation cascade to occur was Tweeted yesterday by Wumbo Labs team member Cirrus. is a product of Gemmy, a Solana NFT collection.

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