A debt crisis that is still going on at the lending platform BendDAO is also making it more likely that the NFT bubble will burst.
OpenSea, the largest nonfungible token (NFT) market in the world, has seen a big drop in daily volumes as fears of a market bubble grow.
OpenSea’s traffic drops to yearly lows.
On August 28, the marketplace processed nearly $5 million worth of NFT transactions, which is about 99% less than its record high of $405.75 million on May 1.
Massive drops in daily volumes happened at the same time that OpenSea users and their transactions also dropped by a lot. This suggests that blockchain-based collectibles have become less valuable and less interesting in recent months.
This is also clear from the fact that the floor prices of leading digital collectible projects are going down. The floor price is the least amount someone is willing to pay for an NFT.
For example, the floor price of the Bored Ape Yacht Club has gone down by 53%, from 153.7 ETH on May 1 to 72.5 ETH on August 28.
In a similar way, the floor price of CryptoPunks, which is another popular NFT collection, fell almost 20% from its high point of 83.72 ETH in July.
The NFT bubble is popping.
The prices of NFTs are given in the currency of the blockchain where they are launched. So, a digital collectible made on Ethereum will be bought with Ether (ETH). This also means that the prices of NFTs will go down if the market value of ETH goes down.
One of the main reasons for the bad NFT numbers seems to be that the ETH market is going down. Notably, the price of one Ether has gone down from $4,950 in November 2021 to less than $1,500 in August 2022.
BendDAO votes to improve NFT liquidity
Last week, BendDAO, a decentralized autonomous organization that lets NFT owners use their digital collectibles as collateral to borrow ETH worth 30%–40% of the NFT’s floor price, voted to change its protocol’s code to make its NFT collateral more liquid.
The vote happened after the price of Ether went up, making loans in ETH worth more in dollar terms. On the other hand, the price of NFTs fell, which made the collateral BendDAO held worth less.
Because of this, BendDAO is now facing its own debt crisis, where borrowers can’t pay their dollar-denominated loans because the price of ETH is going down, and lenders can’t get back what they lent because the value of their collateral is going down.
In its most recent vote, BendDAO’s NFT liquidation threshold dropped from 95% to 70%. To get more bids for their NFT collaterals, it has also cut the time borrowers have to avoid liquidation from 48 hours to 4 hours.
In other words, the floor price of NFTs, such as BAYC, could drop even more if the market continues to lose liquidity.