What is BendDAO and why is it facing Insolvency?

Hey friends,

Welcome back to today's edition of Morning NFTea! We have some impactful stories today from DeFi to M&Ms, so let's get into it!

BendDAO Potential Insolvency

In case you've never heard of BendDAO, it's the first ever decentralized peer-to-pool based NFT liquidity protocol, which allowed lenders to deposit money into its decentralized finance (DeFi) platform, and the DAO (decentralized autonomous organization) would lend this money out to borrowers. When a borrower wants some ETH, the BendDAO takes an NFT as collateral through a smart contract, and the borrower can take up to 40% of that NFTs floor price. Lenders in the DAO then make money off the interest payments that borrowers must pay on top of their ETH. Becoming a depositor on the protocol was open to anyone holding ETH, and BendDAO claimed to offer 77.54% APR on deposits, but according to the protocols homepage it actually reached a rate sitting at 93.96%. Of course, it's not all sunshine and rainbows with something that sounds this good to be true. The BendDAO is currently facing an insolvency crisis with the DAO reserve briefly falling to 0.75 ETH after holding 18,000 ETH just three days beforehand. The problem has come from the recent bear market that has hugely reduced the value of NFTs that were taken as collateral, meaning for some NFT holders whose floor has tanked, it almost makes more sense for borrowers to default on their loans, which has caused the DAO’s wallet to not get refilled. This lead to a lot of bad debt going unpaid and lenders unable to pull their money out. Currently, when these defaulted NFTs are put up for auction, it is at 95% of the floor price. To prevent a backlog and insolvency crisis, the BendDAO founder has proposed new changes as he expects there to be a high likelihood of 600+ liquidation auctions of BAYC, MAYC, Clone X, Azuki, and Doodles over the next month. The new proposed changes are to reduce the 95% threshold in 5% increments over time in order to quickly improve the liquidity of the BendDAO reserve, but these changes will have to be voted in by the DAO lenders. BendDAO is an example of Web3 DeFi and the new possibilities for borrowers and lenders with utilizing their valuable digital assets, but the current volatility of NFTs shows there's still a couple of kinks to iron out.

(We understand this topic is a bit technical, so feel free to reply to this email with any questions you have. We will try our best to answer all of them!)

Bored Ape M&M's

In yet another leap for NFTs breaking the stereotype of just an online jpeg, a new licensing deal between Mars and record label Universal Music Group will see Bored Ape NFTs printed on M&M’s chocolate candy. The candy brand Mars has partnered with the Bored and Mutant Ape-based Web3 music group Kingship to put the NFT band members on a limited edition run of M&Ms. Jane Hwang, the vice president of Mars said "Consumers' expectations for what they want from their favorite brands have shifted, and at Mars, we know we need to be more innovative than ever with such a culturally famous brand like M&M's". If you're unfamiliar with the Kingship band, you can check out our coverage on them from an old edition of Morning NFTea here. Mars will only be selling 10,000 total packages of the candy as gift boxes and gift jars, and you can get early access to the release through Kingship's newly released NFT "key cards". Universal Music Group licensing the band's brand is the latest example of Bored Ape NFT intellectual property utilization, which was proceeded by restaurants, alcohol, TV shows, and even beef jerky. If you want to learn more about NFT intellectual property, stay tuned for an upcoming project breakdown we are dropping on Morning NFTea. This collaboration between Universal Music, M&M Candy, and NFTs shows a glimpse of the interconnected Web3 world that NFTs are starting to build and the real-world potential of these Web3-based brands.

Tally of stolen NFTs reaches $100million

It's no secret that the barrier for entry on NFTs has been quite high due to the almost hieroglyphic nature of wallet transactions, and when paired with the lack of regulations and consumer protection it has led the world of NFTs to be compared to the Wild West or the early days of the internet. Cryptocurrency analyst 'Elliptic' has quantified these scams in a new report that shows $137 million USD of NFTs were stolen since July 2021, and showed on average the perpetrators walked away with $300,000 per scam. Some other stats from the report stated that the most expensive NFT stolen was CryptoPunk #4324 which the scammers sold for $490,000. The most expensive single heist was in December when 16 Blue-Chip NFTs worth $2.1 million were all stolen. Phishing scams were listed as the most common type where holders would accidentally hand over their credentials when connecting their wallets to a masquerading site promoted by hacked social media accounts. Other scams include trojan horse NFTs sent to wallets that leverage smart contracts so in the event a user interacts with the trojan horse, it will drain the wallet. There are also cases of look-a-like scams where NFTs are simply being copied and pasted. 52% of the scammers that Elliptic tracked had their tracks end at Tornado Cash which is publicly known to be used to launder and hide crypto. This comes off the back of the US placing Tornado Cash on a sanctions list this month which will increase the end-to-end difficulty for future scammers. Elliptic's thoughts on Tornado Cash: “Its prolific use by threat actors engaging with NFTs further emphasizes the need for effective sanctions screening by NFT platforms”.

If you'd like to learn more about how to protect yourself with this emerging technology, we'd recommend taking a look at our Twitter Thread on hardware wallets here.

We hope all of you enjoyed today's edition of Morning NFTea. We're no strangers, so if there's anything you think we could improve on or anything you'd like us to write about, shoot us back an email or hit us up on socials! Have a great couple of days and we will catch you on Monday with another edition of Morning NFTea!

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None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.