BIP#15: Adjusting Blue Chip NFT LTV(Collateral Ratio)

Final BIPs
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#1

BIP: #15

Title: Adjusting Blue Chip NFT LTV(Collateral Ratio)

Idea(BRC): https://discord.com/channels/897709643948761148/1042606355153944576

BIP by:bingo#1910(@bingo1977)

Created: 2022-11-28

Status: Community Review | Vote Pending | Approved | Implemented

BIP Editors: NFTLZ.ETH#0717(@defiandnft)

Updated: 2022-11-30

Snapshot: Snapshot

Bored Ape YC, CryptoPunks,Mutan Ape YC - Pass
Other NFTs did not have the required number of votes.

Summary

There will a poll for each collection with different options. Details can be found in the following table.:

Name Current LTV /Collateral Ratio New LTV /Collateral Ratio
Bored Ape YC 40% 45%/50%/55%/60%
CryptoPunks 40% 45%/50%/55%/60%
Mutant Ape YC 30% 35%/40%/45%/50%
Azuki 30% 35%/40%/45%/50%
Moonbirds 30% 35%/40%/45%/50%
CLONE X 30% 35%/40%/45%/50%
Doodles 30% 35%/40%/45%/50%

Background

On November 17, 2022, community member bingo#1910 posted a proposal to increase the NFT collateral rate and received support from more than 10 community users within a week in the Discord Idea channel.
In accordance with the rules of the protocol’s governance process, proposals with 10 support in the Idea Channel can be entered into a forum to vote on implementation options.

BendDAO has been running safely for 8 months. Currently, BAYC, CryptoPunks, MAYC, Azuki, Moonbirds, CloneX, Doodles, and Space Doodles are supported as collateral on BendDAO.

NFT Collection Risk Parameters:

Name LTV/Collateral Ratio Liquidation Threshold Auction Duration/Liquidation Protection
Bored Ape YC 40% 80% 24 hours
CryptoPunks 40% 80% 24 hours
Mutant Ape YC 30% 80% 24 hours
Azuki 30% 80% 24 hours
Moonbirds 30% 80% 24 hours
CLONE X 30% 80% 24 hours
Doodles 30% 80% 24 hours
Space Doodles 30% 80% 24 hours

Motivation

The existing risk framework has been instrumental in supporting the new bluechip NFT collections as collateral and the efficiency of the auction. As observed, updating risk parameters including LTV, liquidation threshold, and auction duration to remain in lockstep with the market is very important to user retention and user adoption.

Upon witnessing the bluechips performance in the last 7 months, the NFT financialization has its own risk management framework. The rise of the LTV will not bring a higher risk of insolvency to BendDAO. Because the debt will be immediately repaid by the first bidder with an efficient auction mechanism.

The rise of the LTV

- Better liquidity and more choices for borrowers; The amount of money that users can borrow will become larger.
- No impact on the exiting borrowers; The Loan health factor will not be recalculated.
- No impact on the auction; The liquidation threshold is 80% which means that when the outstanding debt is more than 80% of the current floor price, an auction can be triggered.

Risk Analysis

There are two analysis reports that may help to understand the risk.

  1. Analysis of liquidation history in BendDAO

    Quick Summary:

    • The data shows the auction mechanism is generally working well now.
    • It also proves that an auction is an effective alter way for users to acquire NFTs compared to directly buying from the marketplace.
    • BAYC has the best data like the highest auction price and maximum bid number.

  2. BendDAO active loans healthy factor distribution
    Quick Summary:

    • In general, there’re two types of distribution
      • Widely spread distribution: BAYC, Doodles, and MAYC
      • A high portion in the safe range: Azuki, CryptoPunks, and CloneX
    • Both distributions seem to be healthy now, at least there’s no large number of loans that are close to being liquidated.

Test Case

Case1: BAYC floorprice =100 ETH
Current LTV is 40%: Alice Collateralized BAYC can borrow up to 40 ETH, Liquidation floorprice is 50ETH.
LTV increased to 60%: Alice Collateralized BAYC can borrow up to 60 ETH, Liquidation floorprice is 75ETH.

Case2: Azuki floorprice =10 ETH
Current LTV is 30%: Alice Collateralized Azuki can borrow up to 3 ETH, Liquidation floorprice is 3.75 ETH.
LTV increased to 50%: Alice Collateralized Azuki can borrow up to 5 ETH, Liquidation floorprice is 6.25 ETH.

Polling

Bored Ape YC
  • Bored Ape YC LTV : 45%
  • Bored Ape YC LTV : 50%
  • Bored Ape YC LTV : 55%
  • Bored Ape YC LTV : 60%
  • Bored Ape YC LTV : No adjustment

0 voters

CryptoPunks
  • CryptoPunks LTV : 45%
  • CryptoPunks LTV : 50%
  • CryptoPunks LTV : 55%
  • CryptoPunks LTV : 60%
  • CryptoPunks LTV : No adjustment

0 voters

Mutant Ape YC
  • Mutant Ape YC LTV : 35%
  • Mutant Ape YC LTV : 40%
  • Mutant Ape YC LTV : 45%
  • Mutant Ape YC LTV : 50%
  • Mutant Ape YC LTV : No adjustment

0 voters

Azuki
  • Azuki LTV : 35%
  • Azuki LTV : 40%
  • Azuki LTV : 45%
  • Azuki LTV : 50%
  • Azuki LTV : No adjustment

0 voters

Moonbirds
  • Moonbirds LTV : 35%
  • Moonbirds LTV : 40%
  • Moonbirds LTV : 45%
  • Moonbirds LTV : 50%
  • Moonbirds LTV : No adjustment

0 voters

CLONE X
  • CLONE X LTV : 35%
  • CLONE X LTV : 40%
  • CLONE X LTV : 45%
  • CLONE X LTV : 50%
  • CLONE X LTV : No adjustment

0 voters

Doodles
  • Doodles LTV : 35%
  • Doodles LTV : 40%
  • Doodles LTV : 45%
  • Doodles LTV : 50%
  • Doodles LTV : No adjustment

0 voters