The ongoing debt problem at lending platform BendDAO raises the prospect of the NFT bubble bursting. Due to concerns about the potential rise of a market bubble, daily volumes at Open seathe world’s most important non-fungible token (NFT) market, have fallen significantly.

OpenSea volume drops to annual low

Notably, the marketplace transacted around $5 million in NFT transactions on August 28 – roughly 99% less than its record high of $405.75 million on May 1. The sharp drop in daily volumes coincided with an equally sharp drop in OpenSea users and transactions, suggesting that the value and interest in blockchain-based collectibles has declined in recent months.

This is also reflected in the lowering of the minimum prices of leading digital collectible projects – the minimum amount one is willing to pay for an NFT. For example, the minimum price of Bored Ape Yacht Club fell by 53% on August 28th to 72.5 ETH from a peak of 153.7 ETH on May 1st. Similarly, the minimum price of CryptoPunks, another popular NFT collection, is down more than 20% from its July peak of 83.72 ETH.

The NFT bubble is bursting

NFT prices are expressed in the currency of the blockchain on which they run. As a result, digital collectibles developed on Ethereum will be acquired using Ether (ETH), meaning that NFT prices will fall if the market valuation of ETH falls. nThe unfavorable ETH market seems to be one of the root causes of the dismal NFT statistics. Notably, the cost of one ether dropped from $4,950 in November 2021 to around $1,500 in August 2022.

BendDAO votes to improve NFT liquidity

BendDAO, a decentralized autonomous organization that allows NFT owners to collateralize their digital collectibles for loans (in ETH) worth 30% to 40% of the NFT’s minimum price, voted last week to change its protocol code to make its NFT collateral more liquid. . The vote took place after the increase in the value of ETH-denominated loans in dollar terms. Meanwhile, NFT prices fell, reducing the value of the collateral held by BendDAO.

As a result, BendDAO is currently experiencing its financial crisis, in which borrowers cannot repay their dollar-denominated loans due to the declining value of ETH. Lenders are unable to recover their borrowed amounts due to the falling value of the collateral. A recent vote by BendDAO lowered the NFT liquidation threshold from 95% to 70%. To encourage more bidding for its NFT collateral, it has also shortened the deadline for borrowers to avoid liquidation from 48 hours to four hours.

In other words, if market liquidity continues to decline, the floor price of NFTs, including BAYC, is at risk of falling much further.

Featured Image: Megapixl @Rafaelhenriquepress

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