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Blog post experiment
I decided to shake things up this week and concentrate on one hot topic that has been the talk of the Web3 town. Since there were really two hot topics, I decided to save the other one for a later episode (spoiler alert: it will be regarding NFT royalties). Anyway, this week's big subject is NFT finance, or NFTFi, and BendDAO is at the very heart of the debate.
NFTFi is at the intersection of NFTs & DeFi with the aim of unlocking liquidity in the NFT space. NFTFi platforms offer financial services for fungible & non-fungible asset holders to borrow against their NFTs or lend their crypto to NFT holders to earn interest. Transactions happen either peer-2-peer, where a loan agreement is arranged directly between lender & borrower, or through lending pools where NFT holders lock their NFTs to borrow money (ETH, USDT) & lenders deposit money into liquidity pools to earn an interest.
BendDAO is one of those NFT finance protocols, specifically a peer-to-pool lending platform, that allow holders of specific NFT collections to take out a loan instantly when they deposit their NFTs as collateral and on the other side of the coin, offers about 18% (at time of writing) in interest for depositors of ETH paid out in BEND (native token of BendDAO) & ETH. NFT depositors can borrow up to 40% of the NFT collection floor price, but in case floor price drops and approaches original loan value, borrower has 48hrs to repay the loan or face liquidation.
This all seems straightforward, but what caught everyone’s attention was this tweet thread
Followed by:
Which was then challenged by another user in this tweet storm
This caused turbulence & panic leading to a bank run;
Two days later, BendDAO co-founder posted on their discord stating they “underestimated how illiquid NFTs could be” & the team is working on an emergency proposal to change parameters within the platform.
Since then, the proposal has passed, and a liquidation bonanza has been under way. You can track all live auctions here:
Moral of the story?
The implications of having a loan backed by a NFT are profound. Pretty soon, NFTFi won’t just be confined to a group of NFT collections. Real world assets & physical collectibles will be attached to NFTs that can in turn be used as collateral for a loan. Imagine the massive unlock of potential with on-chain reputation or soul-bound tokens when you can take out a loan against your on-chain credentials or DeFi credit score instead of digital or physical priced assets. We still have a long way to realize that vision, but its very exciting to witness it all unfold in real time.
One last thing before you go, check out this snapshot of the NFTFi ecosystem.
Learning Hub
- Rabbithole
- Bankless Academy
- Curious
- A16z crypto Canon
- Web3 Glossary
- ChainShot → NEW ADDITION
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Cover art
Artist: aye
Hope this was enjoyable & digestible. Please do reach out here or here for questions, comments or suggestions.