On Monday, developers of decentralized nonfungible tokens (NFTs) borrowing and lending protocol Bend DAO proposed new emergency measures in an attempt to stabilize the ecosystem. The same day, it was revealed that the project had just as little as 15 wrapped Ether (wETH) worth $23,715 to pay back lenders. Approximately 15,000 ETH was lent using the mechanism. To save the protocol from a credit crisis, the Bend Dao dev team suggested that the liquidation threshold for collateral would be constrained to 70% of the loan value, down from 85%.
Next, the auction period for NFTs on its platform would be reduced from 48 to four hours. Then, the requirement for the minimum bid price of NFTs on Bend DAO to be pegged to 95% of the floor price on popular digital collectibles trading platform OpenSea would be removed. Interest rates on loans are to be reset from the current 100% to 20%. Finally, the BendDAO treasury would be empowered to cover the bad debts and use revenue.
The collapsing floor prices of NFTs in the bear market, even among reputable collections, have placed many NFTs in danger of liquidation as interest rates are driven to abnormal levels. As interest rates on "debt-secured" NFTs have skyrocketed to nearly 100%, some users may be finding it more economical to simply let go of their digital collectibles (which are also decreasing in value) instead of paying back the debt, resulting in bad loans. Thirdly, NFT markets are not as liquid as coins or token markets, meaning there actually may not be bids during an NFT's liquidation process, further adding to the death spiral.
Bend DAO was regarded as a blue-chip NFT borrowing and lending platform before credit issues began. The vote for the current proposal will last for 24 hours and has passed the required quorum of 47 million veBend with 99.23% in favor.