<p dir="ltr">In the past, BendDAO was evaluated as an <a href="https://www.builder.news/crypto-insights/nft-lending" alt="NFT lending - A new way for NFT holders to maximize benefits" title="NFT lending - A new way for NFT holders to maximize benefits" target="_blank" rel="" class="">NFT lending</a> platform for both borrowers and lenders due to its benefits. However, recently, BendDAO has been the talk of the town when it was experiencing a near-disastrous liquidity crisis, highlighting the risks of allowing individuals to borrow crypto money against their non-fungible Bored Apes tokens. Why has BendDAO fallen into this bad situation and what are its consequences? Let’s find out in this article on <a href="https://www.builder.news/" alt="Builder.news." title="Builder.news." target="_blank" rel="" class="">Builder.news.</a>&nbsp;</p><h2>Overview BendDAO</h2><h3>What is BendDAO?</h3><p dir="ltr"><strong>BendDAO</strong> is a platform where users pool their Ethereum to make loans to those who want to borrow against NFTs in exchange for a part of the interest payments. One of the outstanding features of BendDAO is that it deals in high-value, blue-chip NFTs, such as <a href="https://www.builder.news/crypto-insights/legendary-nft-collection-bored-ape-yacht-club" alt="Bored Ape Yacht Club - The legendary NFT collection of all time " title="Bored Ape Yacht Club - The legendary NFT collection of all time " target="_blank" rel="" class="">Bored Ape Yacht Club</a>, <a href="https://www.builder.news/crypto-insights/cryptopunks-nft" alt="CryptoPunks NFT - Will the glory that started in 2021 last forever?" title="CryptoPunks NFT - Will the glory that started in 2021 last forever?" target="_blank" rel="" class="">CryptoPunks</a>, Mutant Ape YC, CloneX, Doodles and Azuki, which are considered as a barometer for the general NFT market.</p><h3>How does it work?</h3><p dir="ltr">About the structure of BendDAO, it works following the peer-to-pool lending model which enables users to borrow directly from a liquidity pool rather than looking for a suitable lender match. When liquidation comes, it is not dependent on the date of repayment. It occurs, instead, when the loan's health factor (HF)—a numerical measure of safety consisting of the collateralized market value and the outstanding loan amount—falls below a particular level. At that time, the borrower has 48 hours to repay the loan and retrieve their collateral. Meanwhile, lenders that provide liquidity to the liquidity pool earn interest-bearing bendETH tokens with a price equal to the initial deposit.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed252db7b86489a8e6023f659fee92.jpg" alt="BendDAO structure" title="BendDAO structure" width="600" height="338"></p><h2>Highlights of BendDAO</h2><h3>In terms of borrower’s perspective</h3><p dir="ltr">This project enables people to get loans using their high-value NFT assets as collateral. The approved loan would be about 40% of the collateralized NFT floor price. For example, if you own an NFT with a floor price of 15 ETH, you can borrow up to 6 ETH. Borrowers can also sell their NFT holdings if the floor price falls below a specific level.</p><p dir="ltr">Besides, as mentioned above, borrowers have a 48-hour liquidation protection period to repay the loan when the market fluctuates. It means the last chance for those who do not want to hand over ownership of their NFTs.</p><h3>In terms of lender’s perspective</h3><p dir="ltr">On the lender side, those who invest in BendDAO receive bendETH, which are interest-bearing tokens with the same value as an ETH token. The DAO ensures its investors a 77.54% annual percentage rate of interest, with 73% paid in ETH and 4.53% paid in BEND, the DAO's native currency.&nbsp;</p><p dir="ltr">In addition, similar to borrowers, BendDAO also has a method to ensure lenders’ assets. In more detail, the borrower (user with the collateralized NFT) will be able to repay the loan within the 48-hour timeframe commencing with the auction's start.</p><h2>BendDAO scandal to unveil underlying problems of NFT financing service</h2><iframe width="100%" height="" src="https://t.me/builder_ANN/362?embed=1" frameborder="0"></iframe><p dir="ltr">Alongside these highlights, BendDAO also faces a lot of challenges related to illiquid NFTs in a bear market which are also priceless lessons for other NFT financing platforms (lending, borrowing NFTs).&nbsp;</p><p dir="ltr">To put it simply, let’s deep dive into the <strong>BendDAO recent scandal</strong>. BendDAO’s problem first started on August 21st as some of the NFTs collateralized on its platform neared or fell below their liquidation threshold. When there is a down trend, BendDAO or perhaps any NFT lending platforms will experience a scenario where the borrowers are not repaying their debts and the NFTs being auctioned off are not being purchased due to the high prices established. These exorbitant charges, intended to repay the borrower's obligation, are sometimes far too high for users to lock up their ETH holdings for. Especially when the floor pricing of those NFTs might wind up decreasing within the 48-hour lock-in period. In particular, this is the main cause for the recent scandal of BendDAO. The NFT market has witnessed a long slide in trading volume from May 2022 until now, and as a result, the prices of many blue-chip collectibles such as BAYC or CloneX have also fallen in value. According to statistics from BendDAO, debts are in Risky form including:</p><ul><li><p dir="ltr">BAYC: 120 (an account of 44.12% of total BAYC being mortgaged)</p></li><li><p dir="ltr">MAYC: 120 (an account of 38.83% of total MAYC being mortgaged)</p></li><li><p dir="ltr">CloneX: 60 (an account of 42.25% of total CloneX being mortgaged)</p></li><li><p dir="ltr">Azuki: 30 (an account of 16.04% of the total Azuki is mortgaged)</p></li><li><p dir="ltr">Doodles: 26 (an account of 36.11% of total Doodles are mortgaged)</p></li></ul><p dir="ltr">Besides, BendDAO also has to deal with a big problem when its contract runs out of wrapped Ether (wETH). At the time of writing, the contract has just 425 wETH to pay lenders, while it was estimated to need about 15,000 ETH to pay them. This news caused confusion among lenders as well as a loss of belief in BendDAO.&nbsp;</p><p dir="ltr">Another piece of news which significantly impacted the BendDAO community was when Franklin, a prolific NFT collector, rapidly became a source of worry as the platform's top borrower. Franklin owns 60 Bored Apes and has borrowed more than 10,000 ETH (about $17.5 million) from BendDAO, but Franklin has subsequently tweeted that the loans have been paid off. Like a lot of services in the crypto market, Franklin's situation completely demonstrates how important "whales" can be to smaller participants, with the actions of a few individuals having the potential to jeopardize whole ecosystems.&nbsp;</p><iframe width="550" height="400" src="data:text/html;charset=utf-8,%3Cblockquote%20class%3D%22twitter-tweet%22%3E%3Cp%20lang%3D%22en%22%20dir%3D%22ltr%22%3EThere%20are%20currently%2032%2C267%20ETH%20%28%2459%2C048%2C610%29%20worth%20of%20NFTs%20being%20used%20as%20collateral%20for%20loans%20on%20BendDAO%20alone%3Cbr%3E%3Cbr%3EFor%20the%20first%20time%20ever%2C%20a%20lot%20of%20these%20are%20at%20serious%20peril%20of%20liquidation%3Cbr%3E%3Cbr%3EA%20thread%20on%20the%20single%20biggest%20risk%20to%20the%20NFT%20market%20that%20nobody%20is%20talking%20about%3C/p%3E%26mdash%3B%20Cirrus%20%28@CirrusNFT%29%20%3Ca%20href%3D%22https%3A//twitter.com/CirrusNFT/status/1559954449002401792%3Fref_src%3Dtwsrc%255Etfw%22%3EAugust%2017%2C%202022%3C/a%3E%3C/blockquote%3E%0A%3Cscript%20async%20src%3D%22https%3A//platform.twitter.com/widgets.js%22%20charset%3D%22utf-8%22%3E%3C/script%3E%0A"></iframe><h2>Bottom lines</h2><p dir="ltr">It cannot be denied that BendDAO’s community is now easily tottered when they are faced with an array of bad news from the platform. On a larger scale, “Is it time for NFT lending and borrowing to step back and refresh its mechanics?” is what probably pops up in NFT enthusiasts right now. In fact, if you put your priceless property such as Bored Apes into a platform that possesses many shortcomings in setting the initial parameters, liquidity management,&nbsp; as well as the inflexibility in solving problems, you might understand. BendDAO is a typical case study for both end users and its counterparts to seriously gain experience in a “new, trending but fragile” service of NFTs. Maybe traditional business in NFTs such as buying, selling and holding are more likely safe. still contains&nbsp;</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

The recent BendDAO scandal revealed a lot of mistakes in its structure as well as the working process in the NFT market. Let's research this hot topic through the below article!

BendDAO: Is a slow-explosion bomb in NFT market?