Best Twitter thread of the day – August 18th

There are currently 32,267 ETH ($59,048,610) worth of NFTs being used as collateral for loans on BendDAO alone

For the first time ever, a lot of these are at serious peril of liquidation

A thread on the single biggest risk to the NFT market that nobody is talking about

— Cirrus (@CirrusNFT) August 17, 2022

1. WTF is BendDAO?

BendDAO is the first peer-to-pool based NFT liquidity protocol.

Depositors provide ETH liquidity to earn interest and in turn, NFT holders are able to instantly borrow ETH through the lending pool using NFTs as collateral

— Cirrus (@CirrusNFT) August 17, 2022

2. So how do the loans work?

Most NFTs are collateralized at 30-40% of floor value

So if I take a loan on an ape at 100E floor I can expect to receive a 30-40e loan at a 15-25% interest rate

Cool right?

Until it’s not.

— Cirrus (@CirrusNFT) August 17, 2022

3. Whats that supposed to mean?

If you allow the health factor (defined below) of your loan to fall below 1, your NFT is put up for a 48 hour auction and sold to the highest bidder if you don’t repay the loan in time. pic.twitter.com/ntDNtScij8

— Cirrus (@CirrusNFT) August 17, 2022

A health factor below 1.2 means you are in the danger zone.

A 17% drop of your NFTs floor triggers a liquidation.

Here’s the terrifying part.

There are currently 45 BAYC with a health factor at or below 1.2 pic.twitter.com/f9EwAbcB1l

— Cirrus (@CirrusNFT) August 17, 2022

4. Okay stop you’re scaring me

It gets worse.

See that spike in lending volume at the end of April?

85% of those are loans taken on MAYC and BAYC at 30+ and 125+ floors

It would appear that NFTs should not qualify as pristine collateral… pic.twitter.com/tA4AvjZL5F

— Cirrus (@CirrusNFT) August 17, 2022

5. Well surely there aren’t THAT many collateralized apes right?

Wrong.

2.8% of BAYC supply and 1.6% of MAYC supply are currently in the BendDAO wallet

There are other platforms like NFTfi that also have a sizable amount of outstanding loans pic.twitter.com/DCvCDithhL

— Cirrus (@CirrusNFT) August 17, 2022

6. So WTF happens next?

To me a liquidation spiral on these is a matter of when, not if.

NFT Volume is at yearly lows and there simply isn’t enough liquidity in the market to absorb all of these liquidations without a serious impact on floors.

— Cirrus (@CirrusNFT) August 17, 2022

We saw the first few liquidations of mutants due to low health factor loans this week

Unless borrowers suddenly start paying off loans in bulk, there’s a good chance we see quite a few more in the near future pic.twitter.com/rbs1S9YLko

— Cirrus (@CirrusNFT) August 17, 2022

If and when the dominos start following it’ll be one of the most opportune buying windows for MAYC and BAYC ever.

For the sake of my fellow apes I hope that this disaster is somehow averted, but the reality is that the chances of that aren’t looking too great…

— Cirrus (@CirrusNFT) August 17, 2022

A thread on this FUD today. 163, a major news site in China, ran a story that Google translates to:

“Changpeng Zhao, the founder of Binance, was arrested in the mansion during the FBI raid, and a room of BNB and BUSD was found in the basement of the mansion.” 1/6 https://t.co/nRrGWlSt2r

— CZ 🔶 BNB (@cz_binance) August 18, 2022

Three days later, The Block changed the title from “raided by police” to “visit by authorities”.

Facts.

6/6

— CZ 🔶 BNB (@cz_binance) August 18, 2022