bad debt

NFT lending protocol Bend DAO proposes emergency changes amid credit crisis

“We are sorry that we underestimated how illiquid NFTs could be in a bear market when setting the initial parameters,” says the Bend DAO dev team.

On Monday, developers of decentralized nonfungible tokens (NFTs) borrowing and lending protocol Bend DAO proposed new emergency measures in an attempt to stabilize the ecosystem. The same day, it was revealed that the project had just as little as 15 wrapped Ether (wETH) worth $23,715 to pay back lenders. Approximately 15,000 ETH was lent using the mechanism. To save the protocol from a credit crisis, the Bend Dao dev team suggested that the liquidation threshold for collateral would be constrained to 70% of the loan value, down from 85%.

Next, the auction period for NFTs on its platform would be reduced from 48 to four hours. Then, the requirement for the minimum bid price of NFTs on Bend DAO to be pegged to 95% of the floor price on popular digital collectibles trading platform OpenSea would be removed. Interest rates on loans are to be reset from the current 100% to 20%. Finally, the BendDAO treasury would be empowered to cover the bad debts and use revenue.

The collapsing floor prices of NFTs in the bear market, even among reputable collections, have placed many NFTs in danger of liquidation as interest rates are driven to abnormal levels. As interest rates on “debt-secured” NFTs have skyrocketed to nearly 100%, some users may be finding it more economical to simply let go of their digital collectibles (which are also decreasing in value) instead of paying back the debt, resulting in bad loans. Thirdly, NFT markets are not as liquid as coins or token markets, meaning there actually may not be bids during an NFT’s liquidation process, further adding to the death spiral.

Bend DAO was regarded as a blue-chip NFT borrowing and lending platform before credit issues began. The vote for the current proposal will last for 24 hours and has passed the required quorum of 47 million veBend with 99.23% in favor.

1/ A on how @BendDAO currently works, why the FUD is wrong, and the real problems with the current protocol.

Full disclosure: I pulled all my $eth yesterday and have no current exposure. This is to help others understand their position or those thinking about lending.

— TradFiWhale.eth (@TradFiWhale) August 21, 2022

CoinFlex CEO says withdrawals unlikely to resume on Thursday

CoinFlex CEO Mark Lamb said more time was needed before the exchange can reopen its platform for user withdrawals.

Crypto exchange CoinFlex is “unlikely” to resume withdrawals on Thursday as it had originally hoped, according to its CEO Mark Lamb, as the company continues to search for buyers of its $47 million bad debt.

Speaking to CNBC on Wednesday, Lamb said that more time was needed before it could reopen the platform for withdrawals, stating:

“We will need more time. And it’s unlikely that withdrawals will be re-enabled tomorrow.”

The crypto exchange had been banking on a $47 million token offering launched on Tuesday, which is known as Recovery Value USD (rvUSD). The token offering was created in an attempt to sell off its bad debt after one of its accounts went into negative equity.

In a statement on Tuesday, the company said it hoped withdrawals could restart as previously planned for Thursday, but admitted it would be subject to the token issuance being fully subscribed.

The company has not given any updates as to how many tokens have been subscribed to date, but Lamb noted on Wednesday that CoinFlex is in talks with several large funds to buy up the $47 million debt.

In a separate interview with MarketWatch, Lamb said it has been making “significant progress” on its token sale among distressed debt funds, existing customers and investors, adding that tens of millions of dollars in “soft commitments” have emerged.

The crypto investment platform halted user withdrawals on June 23, citing “extreme market conditions” and “uncertainty around a certain counterparty,” which was later revealed to be the result of a long-time customer of CoinFlex’s account that went into negative equity.

Days later, CoinFlex CEO Mark Lamb publicly pointed fingers at “Bitcoin Jesus” Roger Ver on Twitter, claiming that Ver owes the company $47 million USDC after allowing his account to go into negative equity.

On the same day, Ver — without mentioning CoinFlex by name — denied rumors that he “defaulted on a debt to a counter-party,” and instead alleged the crypto firm owed him “a substantial sum of money.” Ver was an early investor in the exchange and had favorable borrowing conditions.

Lamb continued their Twitter spat stating the “debt is 100% related to his account,” adding that his company “categorically denies that we have any debts owing to him.”

CoinFlex’s recent woes are just another example of a growing number of crypto investment firms and trading platforms facing liquidity issues amid an ongoing crypto bear market.

Crypto lending platform Celsius Network is staring down possible bankruptcy , while crypto hedge fund Three Arrows Capital has just been served a notice of default by Voyager Digital. It has also reportedly been ordered to liquidate by a court in the British Virgin Islands.