Thread by @NFTDaily

First, 𝐰𝐡𝐚𝐭 𝐢𝐬 𝐁𝐞𝐧𝐝𝐃𝐀𝐎?

@BendDAO is a NFT-collateralized crypto loans supporting #NFT holders to borrow $ETH through the lending pool using NFTs as collateral instantly (40% of the floor price), while depositors provide $ETH liquidity to earn interest.

@BendDAO 𝐓𝐡𝐞 𝐫𝐞𝐚𝐬𝐨𝐧 𝐰𝐡𝐲 𝐁𝐞𝐧𝐝𝐃𝐀𝐎 𝐟𝐯𝐜𝐤𝐞𝐝 𝐮𝐩

The Health Factor (𝐇𝐅) is the factor used to determine the risk of collateral in Bend

𝐇𝐅 = (OpenSea Floor Price * Liquidation Threshold) / Debt with Interests 
(Liquidation Threshold = 𝟎.𝟗)

@BendDAO 𝟏.𝟎 < = HF < = 𝟏.𝟓 => Risky => 𝐌𝐔𝐒𝐓 repay the debt

HF < 𝟏.𝟎 + 𝐅𝐀𝐈𝐋 to repay the loan within 48 hours => Liquidation will be triggered, goodbye to your mortgaged NFTs

@BendDAO But I wonder if the Bend team thought about this when the beraaaa market came?

If the floor price drops sharply, then HF will also decrease => More ppl get liquidated => More NFTs will be auctioned to recover the debt. 

But…

@BendDAO ...𝐇𝐨𝐰 𝐚𝐛𝐨𝐮𝐭 𝐧𝐨 𝐨𝐧𝐞 𝐛𝐢𝐝𝐝𝐢𝐧𝐠 𝐨𝐧 𝐭𝐡𝐨𝐬𝐞 #𝐍𝐅𝐓𝐬? 

At first glance, it looks like we will have a super sale NFTs party - an extremely rare opportunity to accumulate blue chips at lower prices compared to OpenSea floors.

@BendDAO 𝐓𝐡𝐞 𝐩𝐫𝐨𝐛𝐥𝐞𝐦 𝐢𝐬 𝐁𝐞𝐧𝐝’𝐬 𝐛𝐢𝐝𝐝𝐢𝐧𝐠 𝐫𝐮𝐥𝐞𝐬. 

Bidders must follow 3 conditions:
- Bids > current debt 
- Bids > 95% of current OpenSea floors
- Lock $ETH for 48 hours

This leads to more problems:

@BendDAO - When Debt > Floor, as a bidder, why do you have to bid? You can buy another one on OpenSea at floor price (unless you love this #NFT soooo much and this is a chance for you to get it in the easiest and cheapest way, maybe) and if floor keeps dropping, no incentive for u to bid

@BendDAO - Because the movement of floors in 48 hours has a high probability of falling further, especially when we are in a bear market like this, bidders wouldn't dare take such a big risk to lock their $ETH for too long for fear of buying at a higher price.

@BendDAO - Big fishes want Bend to die, so they are waiting for the mass liquidation.

𝐖𝐡𝐚𝐭 𝐞𝐥𝐬𝐞?

- #NFT Volume is at yearly lows => not enough liquidity in the market to absorb

@BendDAO - If Debt (loan + very high interest) > Floor, as a borrower, why do you have to pay your debt? You just simply hold $ETH and buy back your NFTs when the floor continues to drop, or just let them be liquidated and buy another Ape on @opensea

@BendDAO @opensea => Mortgaged NFTs are illiquid + Huge amount of $ETH borrowed (15,000 $ETH) may not be repaid
=> BendDAO ends up holding these NFTs as bad debt.

@BendDAO @opensea => Fearing that the protocol would crash and users wouldn't be able to withdraw their funds,, lenders pulled $ETH out of the lending pools => Bank rrrrrrrun

@BendDAO @opensea Consequence?
To Bend: its wallet had no $ETH left. There was just 12.5 WETH in the contract.

=> Liquidity in lending pool = 0
=> Utilization ratio > 100%, borrowers must pay > 100% interest rates
=> Borrowers have more reason not to repay the loan with that crazy interest rates

@BendDAO @opensea To the NFT market: 272 #BAYCs and 309 #MAYCs were in the BendDAO wallet. Those NFTs account for 82.8% of the total collateral value. 

=> The people buying the apes in the auction will get them super cheap, giving them plenty of margin to undercut the floor

@BendDAO @opensea => Massive dump in price could happen
=> BAYC leads the NFT market like Bitcoin because of its huge cap, so it will greatly affect other collections when its floor price is deeply reduced.
=> A liquidation spiral will happen

@BendDAO @opensea 𝐓𝐡𝐞 𝐫𝐞𝐦𝐞𝐝𝐢𝐚𝐭𝐢𝐨𝐧?

Some main emergency changes had been proposed by Bend:

@BendDAO @opensea - Liquidation Threshold: 𝟓% weekly decrease from 𝟗𝟎% to 𝟕𝟎%

=> This is the most important change. By lowering the liquidation threshold, they can be assured that under-collateralized #NFTs will be auctioned off before the floor drops enough to enter bad debt territory.

@BendDAO @opensea - Auction Period: Reduced from 𝟒𝟖 𝐡𝐫𝐬 to 𝟒 𝐡𝐫𝐬

=> Limiting the risk of floor price fluctuations, while increasing the advantage for bidders
=> Attracting more liquidity

@BendDAO @opensea - Base Interest Rate: Adjust to 20% 

𝐂𝐨𝐦𝐦𝐞𝐧𝐭 𝐨𝐧 𝐭𝐡𝐞 𝐞𝐟𝐟𝐞𝐜𝐭𝐢𝐯𝐞𝐧𝐞𝐬𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐩𝐫𝐨𝐩𝐨𝐬𝐚𝐥: Good for lenders, but there will be more supply to hit the market. It will be tough for any floors to go up in the near future.

@BendDAO @opensea What happened then?

Things are getting better 

- Strong buying demand for Clones/Azuki/MAYC/BAYC at floor prices

- Count of NFTs for auction has gone down due to the increase in floor prices of some blue chips, so now Bend owns low percentage of any collection supply

@BendDAO @opensea - Majority of the NFTs are getting bids

- More $ETH has come into the contract: The BendDAO wallet currently has 31,613.33 $ETH, with 18,901 available, which has sent interest rates on borrowed NFTs lower to 4% APR

=> 𝐓𝐡𝐞 𝐜𝐫𝐢𝐬𝐢𝐬 𝐢𝐬 𝐨𝐯𝐞𝐫

@BendDAO @opensea 𝐒𝐨𝐦𝐞 𝐭𝐡𝐨𝐮𝐠𝐡𝐭𝐬?

- This event occurred not because #NFT should never be used as collateral. The main reason is poorly designed thresholds of #BendDAO

- This is the first example of "NFT x DeFi" having a big impact on top #NFT collections.

@BendDAO @opensea - Everything in the #NFT market in particular and #crypto in general is closely linked, so if one link breaks, there will be a domino effect. Human psychology is the catalyst that makes the effect happen faster.

@BendDAO @opensea - Still don't understand why the heads of #BendDAO lock the barn door after the horse is gone. Admittedly they were excellent at making the right and timely corrections to make the situation better,...

@BendDAO @opensea ...but they certainly knew this was going to happen sooner or later and had a solution in place. So why not make the change sooner when the bear market has lasted more than half a year? Did @BendDAO take advantage of this "sure-to-happen" incident to promote itself?