BendDAO running out of funds amid fears of souring debt

NFT platform BendDAO experienced a bank run between August 19 and August 21 as over 15,000 Ethereum (ETH) were withdrawn from its contract within 48 hours.

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While you were asleep the BendDAO bank run finally happened

15 wETH ($25,081) left in the wallet that had 18,000 ETH ($29,160,000) in it just 48 hours ago

Still 14,500 wETH owed to lenders….

Absolute shitshow pic.twitter.com/RKkdqVAVIf

— Cirrus (@CirrusNFT) August 21, 2022

Etherscan data shows that the contract now holds only 151.52 Wrapped Ethereum, roughly $235,000.

NFT liquidation fears

BendDAO has been in the thick of the news after reports that several bluechip NFT holders had borrowed against their NFTs on the platform, spreading liquidation fears on crypto Twitter.

Co-founder of Benddao

About to get liquidated by Benddao

😂😂😂 pic.twitter.com/DvrNLI7lcc

— Erick 🦦 (@EB7) August 19, 2022

According to an August 19 Twitter thread from Double Q, the liquidation could wipe off as much as $55 million from the space.

1/ How @BendDAO and BAYC loan liquidation can nuke the entire NFT market

30,300 ETH ($55m) worth of NFTs on the line

A must read thread to protect yourself 🧵

— doubleQ (@xDoubleQ) August 19, 2022

A Twitter thread from NFTStatistics stated that users who lent ETH to others couldn’t withdraw their funds because there was not enough money in BendDAO’s contract. According to him, the platform lent out around 15,000 ETH.

Ok. Long thread on the BendDAO situation:

1) They’ve run out of ETH. There is just 12.5 WETH in the contract.
2) What does this mean? People who lent money to others via BendDAO to buy NFTs on leverage can’t pull their money out. About 15,000 ETH was lent.

(1/9)

— NFTStatistics.eth (@punk9059) August 21, 2022

More NFTs could land on the auction block if borrowers cannot repay the interest on their debts, especially as the floor price continues declining.

No bids on debt-ridden NFTs

Meanwhile, most NFTs that have defaulted on their loans have not seen a bid. For context, only 4 of the 17 Mutant Apes on auction have received an offer. Other collections like Bored Ape, Doodles, and CloneX cumulatively have nine bids for the 28 NFTs on auction.

5) What does that mean for my NFTs?

It depends. Right now, the majority of NFTs that have defaulted have no bids

13/17 MAYC
5/9 BAYC
8/11 CloneX
6/8 Doodles

👆 total # of NFTs for auction with no bid/total # of NFTs for auction (so, for example, 4 MAYC have bids)

(3/9)

— NFTStatistics.eth (@punk9059) August 21, 2022

The lack of bids is mostly due to the BendDAO requirements. First, the offer has to be above the debt and the OpenSea floor price. Secondly, anyone bidding has to lock up their ETH for 48 hours.

These two requirements have discouraged many, especially as the debt is sometimes higher than the floor price.

Bad debt

Meanwhile, a Twitter user has highlighted that BendDAO is at risk of ending up with bad debt if the floor price of these NFTs continue to decline.

7/ So, we can see that ONLY long-term hodl liquidators are likely to bid. If no one bids, and the floor price keeps going lower, this becomes bad debt for @BendDAO . Benddao will end up Hodling the NFT. There is no cascading liquidations! Great news, but there’s bad news too.

— TradFiWhale.eth (@TradFiWhale) August 21, 2022

In such a case, it could create a vicious cycle where ETH lenders will compete to withdraw, leaving the protocol with NFTs worth below the debt and lenders unable to withdraw.

The user recommended timely liquidations of 1 hour instead of the current 48-hour window.