Nearly $55M worth of Bored Ape, CryptoPunks NFTs risk liquidation amid debt crisis

cointelegraph.com:

Many owners of precious Bored Ape Yacht Club (BAYC) and CryptoPunks NFTs, who used them as collateral to take out loans in Ether (ETH), have failed to repay their debts. The situation could lead up to the NFT sector's first massive liquidation event.

gm.As a result of the floor dropping to 72, the first BAYC liquidation auction on BendDAO has begunStarting price of 68.4e...Any takers or is this going to be the first bad-debt domino that falls for the platform? pic.twitter.com/7qxsIi661e

DoubleQ, the founder of web3 launchpad Double Studio, says lending service BendDAO could liquidate up to $55 million worth of NFTs to recover its loans, fearing the so-called "health factor" of these debts could fall below 1.

Notably, an NFT collection's floor price is important in determining the health factor. BendDAO offers 30%-40% of the NFT's floor price as loans. But the protocol sells the NFT if its floor price falls too close to the amount borrowed—a liquidation threshold, as explained below.

Meanwhile, the floor price of BAYC has fallen from 153.7 ETH in May to 69.69 ETH in August—a nearly 55% plunge in three months. Simultaneously, the health factor of at least 20 loans with BAYC as collateral has fallen to 1.1 as of Aug. 19, data on BendDAO shows.

4/ Why is this a problem?There are currently 20 BAYCs with under 1.1 health factorAnd wayyyy more under 1.2Meaning, all of those apes WILL get liquidated, soon. pic.twitter.com/5jwoZZXHRT

Borrowers have 48 hours to repay the loan or their NFT collateral will be liquidated. According to doubleQ, these liquidations could lead to "a death spiral for the BAYC ecosystem and NFT market as a whole," given BendDAO's exposure to other NFT projects, including CryptoPunks and Doodles.

"OpenSea volume