Bored Ape NFTs are overleveraged, says trader

Bored Ape NFTs are overleveraged, says trader

Over 1,000 BAYC NFTs are pledged as collateral on lending protocols.

A single large holder of Bored Ape Yacht Club NFTs has sold 27 of them, worth nearly $3 million, in the past 24 hours.

For the past two days, the BAYC's market value has fallen by nearly 8%, causing the collection's market value to be far below that of CryptoPunks, which is now the most valuable NFT collection.

Franklin, a pseudonymous seller, cited an explanation for the sales. The collector, known as one of the largest Bored Ape holders, said he sold the NFTs to pay off loans taken out on the BendDAO lending platform.

To Z, a pseudonymous trader tapped into the Bored Ape market, the price drop driven mainly by one investor underscores the fragility of the collection's position in the NFT world. It's also contributed to pushing more than 100 Apes onto the Health Factor Alert List, which means they're close to being liquidated through the auction process.

The whole drama highlights the number of people borrowing against the NFTs, which are worth about $113,000 apiece as of April 13. It's showing how overleveraged the Bored Ape Yacht Club ecosystem is, said The Defiant.

Z pointed out that traders are using over 1,000 Bored Apes as collateral for loans across three lending protocols, including BendDAO, JPEG'd, where traders are borrowing against 38 Bored Apes and ParaSpace, where traders are borrowing against 625 of the tokens.

It's not just the Bored Ape NFTs that have dropped in value this week. In the last 24 hours, CloneX, another well-known PFP collection, is down 19%, according to analytics provider Nansen. As of April 14th, BendDAO notes 11 of the tokens as available for liquidation.

In the past 12 days, Pudgy Penguins fell over 9%, with eight of the tokens up for liquidation on JPEG. The downward price movement across the board indicates that more leveraged NFT traders may see their positions come under pressure.

The trader added that the Blur marketplace's program has incentivized people to post bids for NFTs close to their floor price. This has made it much easier for traders to unload their assets than is typical - without the assistance of some incentive programs like Blur's, finding buyers quickly for a large number of high-value NFTs isn't always possible.

The fact that these bids are primarily from users looking to farm BLUR tokens makes it much more likely that the buyers will turn around and offload any NFT they end up buying onto the next, lower bidder.

This isn't the first time a drama has centered on BendDAO. The project's team made emergency changes to its protocol last year, as a dearth of bids on NFTs up for auction threatened to leave BendDAO with bad debt.

The ETH has rallied more than 5% in the past week, making the current 55.5 ETH ring for Bored Apes about $113,000. A week ago, when the floor was 60.8 ETH a week ago, ETH was trading around $1,870, meaning that the floor price has barely budged in dollar terms.

With their debt denominated in ETH, leveraged traders can't afford to see their Bored Apes drop too much.