For the first time in almost a year, Bored Ape price drop under $100,000 amidst the current severe market crisis. NFT prices are soaring as FTX continues to crash with no savior in line. It’s only logical for NFT prices to get affected as cryptocurrencies suffer, so why is the BAYC price drop such a big deal?
How bad is the Bored Ape Price Drop?
For a while now, BAYC and Cryptopunks’ floor prices were tête-à-tête. However, due to the bored ape price drop, Cryptopunks just surpassed BAYC leaving the apes bored and particularly sad. Is the decrease in price that bad? Well, the blue-chip project reached a peak of 153.7 ETH (approximately $419k then) on May 1st.
Ever since, it’s been on a downturn all while staying above $100,000. But the current floor price, standing at 61 ETH ($77,458 according to the ETH rate at the time of writing) is the lowest yet this year. That’s a 60% drop from the all-time high. The last time we saw an Ape at such a price was around August 2021.
It’s natural for the project, created by YugaLabs, to get swamped in the cryptocurrencies’ collapse. FTX is still struggling with Ponzi Scheme accusations dragging the market down with it. Literally, dragging everything down, as Bitcoin, Ethereum, Solana, and many others continue to go down in value.
Is BAYC related to FTX?
We get it, FTX is on a freefall but is the bored apes related to it in any way? Rumors were circulating, as they do, that FTX was an investor in BAYC and that the apes had FTT and so on. Was any of that true? Partly. FTX was, indeed, an investor in the bored ape yacht club but the latter managed to get their check long ago.
Greg Solano, BAYC co-founder, also known as Garga, addressed the rumors on discord assuring investors that Yuga has never used FTX.com and doesn’t have anything there. So they don’t have any money stuck anywhere. FTX was just a small investor. All good, FTX won’t directly affect BAYC’s operations.
This might seem like good news. But, whether or not BAYC is directly related to FTX, it’s inevitable for it not to get influenced. To add to that, BendDAO comes into play.
Bored Ape Price Drop and BendDAO: Dominos Effect
First of all, what is BendDAO?
It is a community that uses NFT as collateral to loan Ethereum to borrowers. How it works is basically it enables users to deposit high-value NFTs into the service and receive up to 40% of the asset’s “floor price” as a loan in ETH. On the other side, users who deposit and lend out their ETH earn interest on those deposits.
Moreover, there’s something called “health factor”. The health factor is the numeric representation of the safety of your deposited NFT against the borrowed ETH and its underlying value. You can use the following formula to calculate it:
Health Factor = (Floor Price * Liquidation Threshold) / Debt with Interests
The higher the value is, the safer the state of your funds are against a liquidation scenario. If you allow the health factor of your loan to fall below 1, your NFT is put up for a 48 hour auction and sold to the highest bidder if you don’t repay the loan in time. A health factor below 1.2 means you are in the danger zone.
BAYC and BendDAO
The thing is 2.8% of the bored ape collection is linked to BendDAO. And, there currently are 45 BAYC with a health factor at or below 1.2 according to CircusNFT on Twitter. In a Twitter thread, he explains that a liquidation spiral is a matter of when, and not if. Meaning that we could soon be facing the auction of 45 apes due to forced liquidation. This will probably worsen the Bored Ape price drop.
There are currently 32,267 ETH ($59,048,610) worth of NFTs being used as collateral for loans on BendDAO alone
For the first time ever, a lot of these are at serious peril of liquidation
A thread on the single biggest risk to the NFT market that nobody is talking about
— Cirrus (@CirrusNFT) August 17, 2022
The Bored Ape price drop is no good news, but isn’t shocking either. With the current market state, and 45 Apes possibly hitting the market, the future of NFT sits in the dark. You’d think this puts everything to halt in the crypto space, but new projects continue to drop and new collaborations are coming to light. Even Rolex is now entering the metaverse. Read all about it here.