The Ethereum floor price of NFT’s largest collection has slipped to its lowest level since the beginning of the year.
At 65.68 ETH, the floor price of Bored Ape Yacht Club’s NFTs has fallen to levels not seen since January 2, 2022. According to CoinGecko data, it has been trending downward since hitting an all-time high of 153.7 ETH on May 1.
BAYC remains the largest NFT collection in terms of market cap, with 656,800 ETH – just above its closest rival, CryptoPunks, with a total market cap of 655,000 ETH and a floor price of 65.5 ETH.
However, it’s not all bad news for Bored Ape holders. Ethereum’s price fluctuation means that in dollar terms, BAYC’s floor price is about $107,000 today; significantly lower than earlier this year, when it was just under $256,000, but up from a low of just under $87,000, recorded in June.
BAYC faces liquidations on BenDAO
To add fuel to the fire, Bored Apes acquired through loans on the peer-to-peer lending service BenDAO could be liquidated, due to the collection’s falling price floor.
BenDAO, which allows customers to borrow ETH in exchange for NFTs, allows users to take out loans up to 40 percent of the floor price of an NFT. If the floor price of the NFT falls to a point where the “health factor” of the loan secured by the NFT is less than 1, the NFT is placed in a 48-hour auction and sold to the highest bidder if the loan is not repaid.
The health factor is defined as a “numerical representation of the security of your deposited NFT against the borrowed ETH and its underlying value.“
There are currently 72 Bored Ape Yacht Club NFTs on the platform in the “danger zone,” defined by NFT trader Cirrus, who broke the news of the potential liquidations, as having a health factor of less than 1.2 where they risk a drop in the floor price triggering a liquidation.
3. What that supposed to mean?
If you allow the health factor (defined below) 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. pic.twitter.com/ntDNtScij8
– Cirrus (@CirrusNFT) August 17, 2022
BenDAO states in its FAQ that “short-term fluctuations in the NFT floor price are normal” and that “the consensus on first-order NFTs was not built in a day and will not collapse in a short period of time.“
His documentation also notes that “the platform has only a temporary floating loss and no real loss“but leaves open the question of what happens if no buyers come forward and the value of the NFT falls below the value of the accrued debt.
With BAYC’s floor price down 57% from its all-time high in May, and 2.57% of BAYC’s collection tied to BendDAO, this is a question that could become pressing.
NFTs follow the crypto-currency market’s collapse
NFTs like BAYC that run on the Ethereum network and are sold for Ether (ETH) tend to follow the Ethereum price.
After the collapse of UST, Terra’s algorithmic stablecoin, in May, and the bankruptcy filing of hedge fund Three Arrows Capital and crypto-currency lender Celsius Network in June, Ethereum lost 43 percent of its value.
BAYC’s floor price, meanwhile, fell 36 percent from 116 ETH to 65.5 ETH over the same period from May to June.
However, as investors prepare to capitalize on the upcoming Ethereum meltdown, NFTs have broken away from the second-largest crypto-currency by market cap.
Between June 19 and August 20, Ethereum rose from an eight-month low of $995 to $1,634, while BAYC’s price floor continued to fall.
Zooming out, the NFT market as a whole has not performed well over the past 12 months.
The number of daily sales (orange) has declined, while the dollar value of sales (white) has stagnated.
According to NonFungible.com’s Q2 2022 industry report, “interest has fallen” for NFTs, the “geopolitical concerns” impeding the market.
“The liquidity of most collections has decreased significantly, lowering the release rate in the secondary market“, the report suggests.