One of the major challenges in the NFT space is liquidity. In situations where an individual has ether (ETH) worth $10,000, and needs $4,000 to settle an urgent expense. He would have to sell the worth of ether to meet the pressing need. But if the asset is an NFT, it would not be possible to sell the $4000 unless it is fractionalized and that also has its own disadvantage if the individual intends to want full ownership of the NFT especially if it’s a rare piece. What then should be done? While lending has long been in the domains of fungible assets, it has now become possible with NFTs. For the individual, without losing out on the rare piece, the fastest option available is to take a loan secured by the NFT through an NFT lending. This is because the process of listing NFTs in a marketplace and getting a bid takes time and the individual needs funds urgently. Through NFT liquidity protocols such as BendDAO, the individual does not have to sell their NFTs instantly to get liquidity. But what is BendDAO?
Overview
BendDAO is one of the first decentralized peer-to-pool liquidity systems for NFTs. NFT holders can use their assets as collateral on BendDAO and take loans in ETH. The NFT collateral-backed instant loans, NFT down payments, and collateral listing are all supported by the BendDAO protocol. Through BendDAO, users can get a one-stop shop for NFT liquidity due to the flexibility of using the listing, down payment, and borrowing services within a closed loop.
BendDAO does not emphasize NFT fractionalization as a means of achieving liquidity, in contrast to other NFT liquidity protocols. Instead, BendDAO has unveiled a unique approach that enables users to use non-fungible tokens as security deposits to instantaneously borrow ETH loans.
Loans secured by NFT collateral are made available through the lending pool maintained by liquidity providers. On BendDAO, noteworthy NFT collections supported include BAYC, CryptoPunks, MAYC, Azuki, and many more. The platform benefits from the assurance provided by the blue-chip NFT collections regarding their liquidity and value.
Services
Rather than just keeping assets secure in their wallets, BendDAO offers alternatives that can help NFT holders increase the liquidity of their holdings. The decentralized peer-to-peer NFT liquidity protocol also provides a variety of additional services to assist users in boosting their revenues. The following are the three main services offered by BendDAO.
Instant Loans on NFT Collateral
For facilitating NFT liquidity, Instant NFT-backed loans are one of the liquidity solutions offered to users. The owners of NFTs can utilize them to borrow ETH loans through the lending pool rather than holding them. Depositors who provide ETH liquidity to the lending pool potentially receive interest on their deposits. Based on instant loans supported by NFT collateral, BendDAO offers the opportunity for secure leveraged trading.
Collateral Listing
To aid borrowers, the facility for quick NFT-backed loans on BendDAO combines the capability of listing collateral. Even before a sale, NFT owners could get quick loans of up to 40% of the listing’s floor value. At the time the sale is completed, buyers can then pay off the loan and accrued interest. The option of direct collateral listing on BendDAO is available to borrowers who have taken out loans using the NFT protocol of BendDAO. Following the deduction of debt and the interest payment, the borrower or seller would receive the stated loan amount.
Purchasing NFTs with Down Payment
BendDAO also provides the intriguing option of purchasing NFTs with a down payment. By putting down 60% of the actual NFT price, buyers could purchase top-tier NFTs from well-known NFT markets. The BendDAO protocol also starts a flash loan through AAVE at the same moment to pay the remaining NFT cost. The flash loan will be repaid with the aid of the immediate NFT-backed loan facility on the NFT liquidity protocol. As a result, the NFT buyers can be drawn into BendDAO’s closed loop of service
BendDAO and NFT Community
Below are some of the benefits of BendDAO for NFT communities.
Equal Airdrop Rights
For all airdrops involving NFT holders, the borrowers would be represented equally by the BendDAO protocol. BendDAO guarantees the equal distribution of all airdrops to the boundNFT holders who have placed their NFTs as collateral. Furthermore, the decentralized peer-to-peer liquidity protocol for NFTs permits borrowers to assert claims on NFT rewards on other protocols. The BendDAO Flashloan functionality enables borrowers to collect their incentives while the NFTs are still in the collateral pool.
Heightened Security
The ERC-721-compliant conversion of collateral non-fungible tokens into representative boundNFTs takes place simultaneously with the instant loan offerings on BendDAO. The restriction on transferring boundNFTs provides a promising level of assurance for security against theft. The boundNFT has the same virtual appearance as the NFT avatar and can be used on web2-based social media platforms that enable it.
Protections for Liquidity
The 24-hour safeguards for liquidation are a vital value advantage of the BendDAO NFT protocol for NFT communities. Borrowers could also consider the advantages of using BendDAO to prevent any kind of losses brought on by market swings. A 24-hour liquidation protection period is provided by the non-fungible token liquidity protocol, allowing users to repay the loan and prevent losses from NFT price volatility. NFT owners who are reluctant to sell their NFTs can obtain NFT liquidity with the aid of the liquidation protection period without having to sell their NFTs or take any losses as a result of price changes.
NFT Pricing on BendDAO
Another key feature of the layout of this non-fungible token liquidity protocol is the BendDAO price discovery mechanism. Through a complex algorithm code, it calculates NFT floor prices for leveraged trading platforms. Additionally, the prominent OpenSea NFT marketplace provides the original pricing data for NFT price discovery on the liquidity protocol. The NFT price oracle that is connected to OpenSea is currently maintained by the Bend team. Decisions relating to the management of procedures for choosing price oracle sources would gradually come under the jurisdiction of the BendDAO governance mechanisms.
In relation to pricing on BendDAO, users need to pay attention to the collateral ratio. The maximum amount of ETH users can borrow in relation to the floor price of a particular NFT is represented by the collateral ratio. The collateral percentage for famed NFTs, including BAYC and CryptoPunks, is 40%. On the flip side, the collateral ratio drops to 30% for other NFTs. The user-friendly explanation for this would point users toward the NFT risk factors that BendDAO took into account while calculating the value of NFT collateral.
NFT BendDAO Risk Parameters
The BendDAO protocol for NFT liquidity has varied collateral ratios for various NFT collections. Users must also be aware of how the risk evaluation strategy for the Bend protocol prioritizes market and smart contract concerns. The Bend protocol, which has a clear risk framework, concentrates on analyzing the inherent risks attached to NFT assets in BendDAO. The identification and classification of NFTs based on risk will determine the collateral ratio. This means the choice of NFT projects that potentially increase BendDAO’s liquidity is necessitated by the financial risks associated with NFT collateral. That is, the higher the rating of the NFT, the higher the liquidity provided and vice-versa.
The NFT risk parameters on BendDAO are the key performance indicators used by the protocol to assess the value of NFT collateral. The BendDAO protocol’s five key risk factors for NFT liquidity are listed below.
- Trading volumes of the NFT.
- Average asset sales value, also known as asset value.
- The community associated with the NFT is determined by several unique wallets interacting with the non-fungible token in dApps.
- Retention rate, or the proportion of days in which a wallet was active during the relevant time.
- Interactions using NFTs, such as tracking dApp transactions alongside bids and other NFT applications.
BendDAO Lending Protocol
The functionality of BendDAO as an NFT liquidity protocol is facilitated by bendETH, boundNFT, and the interest rate model.
bendETH
Like the aToken on AAVE, the Bend protocol is based on an interest model. The interest-bearing token on the Bend protocol is bendETH, which can be created and burnt during deposits and withdrawals. While providing secure storage, transfer, and trade, the bendETH token’s worth is equal in value to the asset that was deposited in a 1:1 ratio.
boundNFT
BoundNFT is another significant feature that enables BendDAO’s decentralized peer-to-peer or peer-to-pool lending application function. Whenever borrowers deposit an NFT on the platform, a debt NFT is minted on BendDAO. Without compromising the NFTs’ digital look, the BendDAO protocol can leverage boundNFT to provide access to vault capabilities together with thorough security. Given that boundNFTs have the same token ID and metadata as the original NFT, they are easy to use as social media PFPs.
Users are guaranteed protection from theft because these boundNFTs are not transferable and neither approvable. The boundNFT may provide some services, like access to any airdrop and claimable or mintable assets for the concerned NFT. NFT owners can also earn NFT incentives from several protocols through boundNFT’s flash claim facility.
Interest rate
The interest rate model used by BendDAO has been tuned to minimize risk while controlling liquidity. BendDAO chooses the borrowing interest rates based on the amount of capital available in the loan pool.
By utilizing user incentives as sources of liquidity, the interest rate model achieves successful results in addressing liquidity concerns. When there is cash available, the interest rate model of BendDAO gives lower interest rates for encouraging loans. When capital is scarce, the protocol mandates higher interest rates, which would necessitate earlier loan repayments in addition to interest deposits.
NFT Auction
BendDAO’s NFT auction aims to make sure that it can maintain decentralization and sustainability. Additionally, it is the most effective method for identifying the real prices of NFTs. When the ‘health factor’ for a mortgaged NFT drops below 1, the NFT auction begins.
To further simplify it, collateral with an 80% liquidation threshold would suggest that the loan could be repaid after the debt value equals 80% of the collateral’s value. The auction starts with a set starting bid that exceeds the entire accumulated debt for the NFT in question.
BendDAO Tokenomics
The native token of BendDAO is $BEND. The protocol has a total supply of 10 billion $BEND tokens.
In terms of distribution and allocation, 21% goes to the developing team, 10% to the initial fair-launch offering, 21% to treasury reserve, 5% as airdrops, 3% as Uniswap LP incentives through governance and the final 40% as incentives for lending or borrowing.
BendDAO Governance Mechanism
In BendDAO, the term “DAO” denotes the requirement for a protocol governance system. The Snapshot Space Forum serves as the governing body for the BendDAO NFT liquidity protocol. The forum uses BEND tokens to approve protocol improvement proposals from Bend.
A unique feature of the governance system is that it has been designed to guarantee thorough discussion of proposals before submitting them for on-chain implementation. The flexibility for the delegation of votes to Bend protocol representatives further demonstrates the BEND token’s significance in the governance process. Community members could therefore designate another person to cast their vote on their behalf.
Closing Thoughts
Without selling NFTs, the BendDAO NFT liquidity solution meets the needs of those looking for NFT liquidity. Owners of non-fungible tokens do not need to fractionalize their NFTs to benefit from desired liquidity. Users of the BendDAO protocol are placed in a closed loop where they are forced to engage in a never-ending cycle of borrowing and lending.
BendDAO offers purchasers the ability to buy NFTs with a 60% down payment and a flash loan by providing the option of quick NFT-backed loans, collateral listing, and NFT down payments. The Bend protocol is positioned to deliver positive results for the future of NFT liquidity through the assurance of a risk assessment framework and a strong governance system.
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