LD Capital: Will the Azuki incident lead to the bankruptcy of NFT lending platforms?

NFT lending markets usually use auctions to liquidate collateral, which can take several days. In the event of extreme market conditions, NFT lending protocols may experience a large number of bad debts, which must be paid for by the protocol or depositors. LD Capital analyzed the situation of the lending products of the three major points-to-pool protocols, BendDAO, Jpegd and BlockingraSBlockingce, during the significant drop in blue-chip NFTs.

BendDAO: On July 3rd, BAYC experienced a significant drop, and BendDAO had 267 ETH in auction debt with 22 ETH in bad debt, prompting the team to propose clearing bad debt with treasury funds. Meanwhile, BendDAO had a remaining loan balance of about 900 ETH, and the oracle feed price was slightly higher than the trading platform’s floor price due to time-weighted average problems and higher than the bid price, causing a significant shrinkage in the platform’s deposit pool. After July 3rd, blue-chip NFT prices slightly rebounded, and most of BendDAO’s loans were auctioned off. Currently, there is 12.81 ETH in bad debt and 72.48 ETH in auction debt, and the liquidation proposal has been approved, eliminating the bankruptcy crisis. Currently, BendDAO’s deposit pool has decreased from about 45,000 ETH before the Azuki incident to about 6,000 ETH, and TVL has been halved, with deposit rates rising from 5% to 48% and borrowing rates rising to 62%.

BlockingrasBlockingce: The situation with BlockingrasBlockingce is similar to BendDAO, but because a lot of loans are in USDT rather than ETH, the decline in blue-chip NFT exchange rates for USDT over the past six months has been smaller than the decline for ETH. The overall LTV was lower than BendDAO’s before the incident, so the impact of this event was small.

Jpegd: The main collateral for Jpegd, CryptoPunk, has a small price drop, and borrowing is done through CDPs to create pETH and pUSD, and there is no deposit pool, so there is no sharp rise in interest rates after deposit pool shrinkage. Therefore, Jpegd has been minimally affected by this event. It is worth noting that Jpegd may modify the economic model to introduce the ability to create pETH tokens by mortgaging JPEG tokens to release JPEG’s loan liquidity, alleviate pETH’s positive premium, and share more protocol governance resources with JPEG holders.

Reference: https://ld-capital.medium.com/azuki事件会导致nft借贷平台破产吗-acafa84ee054

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