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December 9, 2024
In the past few days, we witnessed an interesting trend that some people might assume has great significance to the crypto market: For a brief moment, The BAYC wasn’t the priciest NFT series around, and its floor price was surpassed by CryptoPunks’ floor price.Β
This was the first time in many months that The Bored Ape Yacht Club holders are not the strongest guys around.
CryptoPunks were created by Larva Labs in 2017 and are considered one of the first NFT collections on the Ethereum blockchain, and the first collection that became a major success. Since BAYC were launched in April 2021, they overthrew CryptoPunks and basically held the crown with no stopping until now.
The question is what caused BAYCs’ brief descent, and most importantly, what does it say about the future.
The simplest explanation is that because the BAYC price reached the highest peaks, it experienced the hardest fall when crypto winter came. Everyone is losing value; The BAYC has just more price value to lose. But CryptoPunks have also gained some momentum: At the beginning of the month, Yuga Labs (who have bought the collection and basically control much of the NFT market) gave CryptoPunks holders commercial rights in their NFTs. This gave CryptoPunks additional added value.Β
Another thing that has happened since Crypto winter is that more people have started in what is called “blue chip NFTs”: similar to blue chip stocks, blue chip NFTs are NFTs that are considered ones who will maintain value for the long run. Since BAYC was somewhat overpriced, they haven’t benefited from this trend, but CryptoPunks most certainly have.Β
But the thing that had the biggest impact on the decline in the price of BAYC is the BendDAO announcement regarding BAYC. BendDAO is a Χ΄peer-to-poolΧ΄ lending platform that allows people to borrow ETH in return for collateral. It just so happens that about 3% of all holders of BAYC have acquired loans and used their ape as collateral. Since many loans have not been paid on time, BendDAO has announced that 72 Bored Apes are expected to be liquidated by the lending DAO and be put on auction. This will “flood” the market with BAYC and inevitably drive the price down. So some holders are selling their apes due to this expectation, and ape prices are going down for real.
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How does peer-to-pool Work?
This BAYC mini drama also brought light to the concept of a peer-to-pool lending platform. The way BendDAO works is this: ETH holders deposit some of their ETH in a liquidity pool, in return for interest, just like a bank. This ETH pool allows NFT holders can loan ETH using their NFTs as collateral.
There are currently 32,267 ETH ($59,048,610) worth of NFTs being used as collateral for loans on BendDAO alone
— Cirrus (@CirrusNFT) August 17, 2022
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
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. The problem is that if the collateral fluctuates beneath a certain degree, the loaner is given immediate notice that he has to return his debt, or he loses its collateral. Due to a price decline, this happened to many ape holders who took loans against their apes, which is expected to cause a further decline in prices. The BendDAO is running out of ETH to pay people in what is essentially a bank run (like what we have seen in historical times like the great depression). If this starts to smell like Luna, we are with you.Β
So, Hodl your horses, Septembear is coming.
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