BendDAO Reserve Holdings Surge to New Highs After Proposal Passes

Published: Aug 26, 2022
Written By:
Ruholamin Haqshanas

BendDAO’s reserves recently spiked above 19,000 wrapped ETH (wETH), worth over $32 million, after enduring a liquidity crisis during the week. The change came after the decentralized autonomous organization (DAO) passed a new proposal to improve certain parameters to make it easier for new users to participate and bid on defaulted NFTs.

The proposal, tagged BIP #9, sought to increase the liquidation of the NFT lending platform, adjust the auction period, and remove the first bid limitation, and provide a fix for other issues.

“After a comprehensive review and discussion, it’s time to make a proposal to help ETH depositors to build confidence,” said the team.

Key takeaways

  • BendDAO has bounced back from a liquidity crunch with a healthy increase in its reserves.
  • The surge in reserves comes after the community voted in support of a proposal that introduced new improvements to the protocol.
  • Several projects in the ecosystem have suffered a liquidity crisis over the past few months.

Widespread voter support

The proposal sailed through with ease as 97.13% of voters supported it while only 2.87% voted against it. A basic voting system was employed that lasted for 24 hours and required only 75% approval to be passed.

BendDAO is a decentralized, peer-to-peer (P2P) NFT lending protocol. Built on the Ethereum blockchain, the project enables NFT owners to post their digital artworks as collateral and receive ETH loans in return. It also enables depositors to earn high interest rates by locking ETH and providing liquidity.

Drained reserves, failed NFT sales

At the start of the week, BendDAO’s depositors staged a bank run that drained the project’s reserves. The move came after NFT borrowers were preferring to default on their loans rather than pay them back due to falling NFT prices and rising debt and interest rates.

The defaulted NFTs were put up for sale, though they failed to attract any bids. That was largely due to the fact that the protocol required bids to be above the “debt” the borrower owed. However, with the recent plunge in prices of NFTs, the debt on those NFTs was much higher than the collection’s floor price.

Consequently, the project’s reserves reached an all-time low of 0.75 wETH.

New fixes with the proposal

The new proposal has largely addressed these issues. It has reduced the liquidation threshold, the maximum loan to value (LTV), to 70% from the previous 95%, reducing the window for the ETH borrowers to pay back loans and avoid liquidation.

The proposal has also removed the first bid limitation, which required users to place bids that are above the debt the borrower owed. The rationale, according to the proposal, is to increase liquidity levels while assuring NFT holders that they will not lose their holdings because of new measures put in place.

Ruholamin Haqshanas
Ruholamin Haqshanas
Ruholamin Haqshanas is contributing crypto writer for Milk Road and finance journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging market for non-fungible tokens (NFTs).