BAYC, whose transaction price once exceeded 150E and whose floor price had long been maintained above 80E, fell below 50E today.
This wave of decline appeared a month ago, and after it fell below 60E on November 9, a large number of transactions occurred intensively.
After some research, we found that there is a large investor 0xed2ab4948bA6A909a7751DEc4F34f303eB8c7236, who holds 50 BAYCs. In the past week, he has become a market maker for BAYC by frequently placing orders on X2Y2, which has contributed to the decline of BAYC.
This is not all his tricks. How can this wallet with only 52E liquidity buy and sell BAYC so frequently? If we trace it further, we will find BendDAO.
BendDAO is a decentralized NFT mortgage platform. On one side of the platform are lenders - depositing ETH and earning interest income; on the other side are borrowers - pledging NFTs, lending ETH, and paying interest. The amount that borrowers can borrow is 40% of the floor price of the NFT series where the pledged NFT is located.
When the NFT floor price falls to the sum of the principal and interest of the loan (currently 1.25 times the sum of the principal and interest), liquidation will be triggered. If the loan cannot be repaid within a certain period of time (currently 24 hours) or the market floor price changes on its own to make this multiple rise, an auction will be launched. The starting price of the NFT is set at the sum of the principal and interest of the loan, which is 80% off the NFT floor price.
At the same time, in order to encourage everyone to actively participate in the auction, BendDAO will give the first bidder a right similar to an option. This right will only take effect when the borrower cancels the auction by repaying the loan after entering the auction. This right allows the first bidder to receive additional rewards. This reward comes from the additional penalty for breach of contract charged to the borrower.
The last time I saw this business model was P2P 15 years ago.
In the early days of P2P, users invested in the platform to form a capital pool, and the platform decided which project to invest in. The upper limit of the investment amount was 30% to 70% of the project's valuation. The return on investment would vary depending on the length of the investment period (called lock-up in the currency circle). The longer the period, the higher the average return.
Even so, the projects in the fund pool are still often mismatched. Because when there are more targets and platforms, in order to attract new customers, the platform will artificially subsidize short-term investment returns, and investors like to invest in short-term projects. But projects like to borrow long-term money, so the platform keeps investing short-term investments in long-term projects. One day, the tenth bucket that cannot be closed by the nine lids will catch fire, and the platform will explode.
Therefore, the later regulations prohibit mismatching of maturities, prohibit fund pools, and require bidding before financing. Even so, P2P is still on the verge of a dead end, because in extreme cases, the liquidation value of the collateral is far lower than normal. And you don’t know whether your investment will be in an extreme situation when it is due for repayment. In short, P2P does the liquidity risk business of banks, but does not have the liquidity risk reserves of banks and the backstage of the central bank.
BendDAO is such a P2P, and it is an early fund pool P2P. It proudly claims to be a "Peer-to-Pool" model, but in fact it is the most primitive and risky fund pool P2P.
Its founder is a former employee of Ele.me, and he must have witnessed the P2P boom.
However, as a non-financial practitioner, he obviously only learned the form but not the soul of finance, and did the same thing as the earliest P2Ps. Of course, P2Ps at that time, such as "e-zubao", still had the problem of misappropriation of funds, which does not exist under the DAO form of BendDAO (provided that the project party does not change the code).
Even if there is no misappropriation of funds, such P2P will eventually explode at these two points:
Liquidity risk of maturity mismatch
If the lender wants to withdraw the capital (BendDAO's lenders are current financial management and can deposit and withdraw at any time), and the borrower is unwilling to repay the loan (BendDAO's borrowers are also current loans and can be repaid at any time or continue to accrue interest), then without triggering liquidation (because liquidation is only related to price), a run on BendDAO will occur.
Price volatility risk of underlying liquidation
When the target enters the liquidation phase, if the market price fluctuates too much and the market price is far away from the loan amount, the auction proceeds will not be enough to repay the loan. This happens frequently in the Web3 world, and consensus can easily crash.
Market liquidity risk at the time of liquidation of the underlying
When the target is liquidated, if the bidding willingness is insufficient, the transaction price will be far lower than the floor price. This will lower the floor price, thereby prompting more targets to enter liquidation, further depressing the transaction price. Entering a death spiral.
If these three points intersect, the death spiral will become a larger death spiral, and may even bring down the blue-chip NFT market. BendDAO is already a relative leader in the NFTFi market. If the NFTFi market becomes more accepted, BendDAO's influence will be even greater. By then, it will not only be the lenders of BendDAO who will suffer losses, but also the entire blue-chip NFT market, causing a disaster in the currency circle that is no less severe than Luna and FTX.
Author | danxu.eth
Editor | Metaverse Princess
