Imagine having an NFT worth $20,000, which you have sitting in your wallet when you need a loan of $10,000 to settle an urgent expense. In this case, an NFT liquidity protocol like BEND might come to your rescue. The following discussion will guide you through an introduction to the basics of BendDAO or BEND alongside different aspects of its working.
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What is BendDAO?
The definition of BendDAO can provide a credible beginning to a guide on the new liquidity protocol. It is the first decentralized peer-to-pool liquidity protocol for non-fungible tokens. NFT owners can deposit their assets on BendDAO in the form of collateral and borrow loans in ETH. The BendDAO crypto protocol supports instant loans backed by NFT collateral, NFT down payments, and collateral listing. The flexibility for using the services of listing, down payment, and borrowing helps in offering a one-stop solution for NFT liquidity to users within a closed loop.
How Does BendDAO Work?
The answer to “what is BendDAO” invites curiosity regarding how it works. BendDAO does not focus on the fragmentation of NFTs for achieving liquidity, as in the case of other NFT liquidity protocols. BendDAO has introduced a unique model for helping users leverage non-fungible tokens as collateral deposits for borrowing ETH loans immediately.
The loan pool supported by liquidity providers offers loans backed by NFT collaterals. Some of the notable NFT collections supported on BendDAO include BAYC, CryptoPunks, MAYC, Azuki and many others. The blue-chip NFT collections help the platform with assurance regarding their liquidity and value.
Important Highlights of BendDAO Protocol
The next crucial aspect you need to learn about BendDAO protocol would refer to the offerings it presents to users. BendDAO offers solutions that can enable NFT holders to achieve better liquidity on their assets rather than storing them safely in their wallets. In addition, the decentralized p2p protocol for NFT liquidity also offers a combination of other products to help users increase their profits. The three primary offerings by BendDAO include the following.
Instant Loans on NFT Collateral
Instant NFT-backed loans are the primary solution offered to users for facilitating NFT liquidity. Rather than holding on to their NFTs, the owners can use them for borrowing ETH loans through the lending pool. The depositors offering ETH liquidity to the lending pool can earn interest on their deposits. BendDAO offers the opportunity for secure leveraged trading on the foundation of instant loans backed by NFT collateral.
The facility for instant NFT-backed loans on BendDAO also combines the collateral listing functionality to help borrowers. NFT owners could obtain instant loans ranging up to almost 40% of the listing’s floor value, even before a sale. Buyers could then pay off the loan immediately upon the conclusion of the deal, alongside the estimated interest. Borrowers who have taken loans from BendDAO NFT protocol could also rely on the facility of direct collateral listing on BendDAO. The borrower or the seller would receive the specified loan amount after the deduction of debt alongside the interest payment.
Purchasing NFTs with Down Payment
The next crucial highlight among the offerings by BendDAO would refer to the facility of buying NFTs with a down payment. Buyers could grab blue-chip NFTs from popular NFT marketplaces by paying a down payment of 60% of the actual NFT price. At the same time, the BendDAO protocol also initiates a flash loan through AAVE for paying the rest of the NFT price. Now, the instant NFT-backed loan facility on the NFT liquidity protocol helps in paying off the flash loan. As a result, the NFT buyers could end up in the closed loop of offerings by BendDAO.
Buyers transform into borrowers on BendDAO by purchasing NFTs with a down payment. On the other hand, NFT sellers can transform into borrowers by putting up their NFTs for a mortgage in return for ETH loans. The continuous cycle repeats itself and has the potential to bring in many users.
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Value Advantages of BendDAO for NFT Community
The benefits of NFT liquidity with the BendDAO crypto protocol for NFT owners are evident in the explanation of how BendDAO works. However, it is also important to wonder about the potential benefits it can bring to the larger NFT community. Here are some of the significant advantages for NFT communities with BendDAO.
The borrowers would receive equitable representation with the BendDAO protocol for all the airdrops related to NFT holders. BendDAO ensures collection of all airdrops followed by equitable distribution to the boundNFT holders who have deposited their NFTs as collateral. In addition, the decentralized p2p liquidity protocol for NFTs also allows borrowers to exercise claims on NFT rewards on other protocols. The Flashloan feature helps borrowers claim their rewards while the NFTs remain in the collateral pool on BendDAO.
The instant loan offerings on BendDAO accompany the conversion of collateral non-fungible tokens into representative boundNFTs, following the ERC-721 standard. Now, the restriction on transferring boundNFTs offers promising assurance for safety against theft. The boundNFT also features the same digital appearance, which is eligible for use on web2 social media platforms supporting the NFT avatar. For example, a BAYC NFT would retain the same appearance as the digital ape, even in the form of boundNFT.
Another crucial value benefit of the BendDAO NFT protocol for NFT communities refers to the 24-hour safeguards for liquidation. Borrowers could also explore the benefits of avoiding any type of losses due to market fluctuations with BendDAO. The non-fungible token liquidity protocol serves a 24-hour liquidation protection period, within which you can repay the loan and avoid losses due to price fluctuations for the NFTs. Many NFT owners do not want to sell their NFTs. The liquidation protection period can help them achieve NFT liquidity without selling their NFTs or bearing any losses due to price fluctuations.
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NFT Pricing on BendDAO
The BendDAO price discovery mechanism is also another significant highlight in the design of this new non-fungible token liquidity protocol. It calculates NFT floor prices for leveraged trading on the platform through a complicated algorithm. In addition, the original price data for NFT price discovery on the liquidity protocol comes from the popular OpenSea NFT marketplace. As of now, the Bend team takes care of the maintenance of the NFT price oracle connected to OpenSea. The BendDAO governance mechanisms would gradually take control over decisions regarding the management of processes for selecting price oracle sources.
The pricing of NFTs is an important concern in defining “what is BendDAO” and how it works. Speaking of the pricing concerns on BendDAO, you must also take note of the collateral ratio. The collateral ratio represents the maximum amount of ETH you can borrow in comparison to the floor price of a specific NFT. In the case of blue-chip NFTs such as BAYC and CryptoPunks, the collateral ratio amounts to 40%. However, the collateral ratio lowers down to 30% for other NFTs. Why? The answer would direct you towards NFT risk parameters considered by BendDAO for determining the worth of NFT collateral.
NFT Risk Parameters on BendDAO
The collateral ratio for different NFT collections varies on the BendDAO crypto protocol for NFT liquidity. Users must also notice how the risk assessment approach for Bend protocol focuses on market and smart contract risks. With a definitive risk framework, the Bend protocol focuses on the analysis of inherent risks associated with NFT assets in BendDAO. On top of it, proactive risk identification also offers better ease of understanding the processes for mitigating potential risks. With the help of BendDAO, NFT owners could enjoy active participation in the DeFi world. However, the financial risks due to NFT collateral call for the selection of NFT projects which can add liquidity to BendDAO.
The NFT risk parameters on BendDAO are the crucial metrics on which the protocol determines the worth of NFT collateral. Here are the five important risk parameters for NFT liquidity on the BendDAO protocol.
- Many sales or trade volumes of the NFT.
- Average sales value of the asset, or 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 percentage of days with the activity of a wallet in the concerned period.
- Interactions associated with NFTs, such as the count of dApp transactions alongside bids and other uses of NFTs.
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Highlights of the BendDAO Lending Protocol
The working of BendDAO as an NFT liquidity protocol would call for discussions on specific highlights such as bendETH, boundNFT, and the interest rate model and oracle price feed.
Bend protocol relies on a similar interest model like the aToken on AAVE. bendETH on Bend protocol serves as the interest-bearing token, which can be minted and burned on the occasion of deposits and withdrawals. The value of the bendETH token corresponds to the deposited asset in a 1:1 ratio while ensuring safe storage, transfer, and trading.
The next crucial highlight in the working of BendDAO decentralized p2p or peer-to-pool lending application is boundNFT. It is the debt NFT minted on BendDAO when borrowers deposit an NFT on the platform. The BendDAO protocol can use boundNFT for accessing vault functionality alongside comprehensive security without compromising on the digital appearance of NFTs. boundNFTs feature similar token ID and metadata as the original NFT, thereby implying ease of use as social media PFP.
Since the boundNFTs are non-approvable and non-transferable, you can have the assurance of safety from theft. The boundNFT could serve some interesting utilities, such as access to any airdrop and claimable or mintable assets for the concerned NFT. In addition, the flash claim facility in boundNFT allows owners to collect NFT rewards from different protocols.
The interest rate model is also a critical highlight for understanding ‘what is BendDAO’ and its value advantages. It has been calibrated for managing liquidity risks alongside optimizing utilization. BendDAO determines the borrow interest rates based on the availability of capital in the lending pool.
The interest rate model serves effective results in managing liquidity risks by leveraging user incentives as sources of liquidity. The interest rate model of BendDAO offers lowers interest rates for encouraging loans due to the availability of capital. In the scarcity of capital, the protocol imposes higher interest rates which would call for faster loan repayments alongside interest deposits.
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The NFT auction is another crucial design highlight in the BendDAO NFT protocol. It focuses on ensuring that BendDAO can ensure sustainability and decentralization. Furthermore, it serves as the best approach for identifying the real prices of NFTs. The NFT auction starts in cases where the health factor for a mortgaged NFT falls below 1.
To simplify it further, collateral with an 80% liquidation threshold would imply the possibility of liquidating the loan when the debt value reaches 80% of the value of the collateral. The auction begins with a specific starting price, which is more than the total accumulated debt for the concerned NFT.
Tokenomics of Bend Protocol
The introduction to BendDAO crypto liquidity protocol would also focus on its tokenomics. The protocol has been created as a scalable, decentralized, liquid, and fair solution for ensuring NFT liquidity. As of now, the protocol plans on an initial token supply of 10 billion. The allocation of the BEND tokens would follow a distribution approach like the following.
- Developer team- 21%
- Initial fair-launch offering- 10%
- Treasury Reserve- 21%
- Airdrops- 5%
- Uniswap LP incentives through governance- 3%
- Incentives for lending or borrowing- 40%
The term ‘DAO’ in BendDAO indicates the necessity of a governance mechanism for the protocol. Interestingly, the governance mechanism behind the BendDAO NFT liquidity protocol is the Snapshot Space forum. The forum leverages BEND tokens for approval of Bend Improvement Proposals for the protocol.
Interestingly, the governance mechanism has been tailored to ensure extensive discussion on proposals before passing them to on-chain implementations. The significance of the BEND token in the governance process is also evident in the flexibility for the delegation of votes to Bend protocol politicians. As a result, community members could assign another individual with the responsibility of voting on their behalf.
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The BendDAO NFT liquidity solution is still in the initial stages. However, it is important to note how it has successfully provided a solution for NFT liquidity without breaking down NFTs. Non-fungible token owners don’t have to fractionalize their assets to obtain desired liquidity benefits. The offerings of the BendDAO protocol form a closed loop for users, wherein you end up in a cycle of borrowing and lending.
With the facility of instant NFT-backed loans, collateral listing, and NFT down payments, BendDAO allows buyers to purchase NFTs with a 60% down payment and a flash loan. Similarly, sellers could deposit NFTs as collateral and obtain loans. The quick repayment of loans serves as the primary highlight in the operations of BendDAO. With the assurance of a risk assessment framework and a formidable governance mechanism, the Bend protocol can achieve promising outcomes for the future of NFT liquidity.
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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!