25th August 2022 > > Non-fungible tokens.

tl;dr

Good and bad news from the world of non-fungible tokens (NFTs).

Market Snap

Market Wrap

Senior officials of the US Federal Reserve attend their annual jamboree in Jackson Hole, Wyoming from today until Saturday.

Official comments will be keenly sparsed for any indication of the future direction of interest rates (spoiler alert: upwards and onwards). 2-10s remain inverted at 28bps, and in the last few days, 10s smashed through the 3-handle again.

Occasional Series – Wow that was a break

Don’t worry, the CCC will never go missing for that long again.

Curious Cryptos’ Commentary – Non-fungible tokens (NFTs), a good story

The world of NFTs has come in for some stick recently.

On the 20th August (shamefully the last time the CCC got around to writing and publishing commentary) I reported that BendDAO, a decentralised crypto lending and borrowing platform using seven blue-chip NFT collections as collateral, was seemingly getting into trouble.

To briefly recap, lenders of ETH were receiving yields of around 10%, whilst borrowers were paying around 16%, though it is important to note that the rates vary frequently and are affected by the real world price of the platform’s native token BEND.

The collateral value of any individual NFT was based upon the floor price for that collection, with loans available at 40% of that value. As floor prices have decreased of late (due mostly to the broader problems in the crypto world) some of those NFTs have come up for auction to repay the loan and outstanding interest.

All well and good, but there was a restriction that any bids for an NTF in auction had to be at least 95% of the floor price and equal to or higher than the debt burden. Given the illiquidity inherent in NFTs, many auctions failed to attract bids, and the liquidity of the protocol reportedly went as low as 10 ETH or so at one point.

This wasn’t a threat to the protocol, but it was a threat to lenders to the protocol.

If none of the collateral could be sold, then lenders could not access their funds, and the loans would eventually far exceed the value of any of the collateral, leaving the NFTs in limbo, and investors on both sides nursing permanent and unresolvable losses.

…

Improvements to protocols referred to as a BIP (originally Bitcoin Improvement Proposal but now applicable to all cryptos) are voted on by holders of the coin native to that protocol.

BIP10 has been passed with a 97% vote in favour. This removed the need for bids to be at least 95% of the floor value, suddenly breathing life back into BendDAO.

Liquidity is now at 7,000 ETH and climbing. I assume that some NFTs have been sold to pay off the outstanding loans, and lenders are adding more liquidity.

It is nice to report on the restoration of a crypto project that frankly looked doomed just a few days ago.

Curious Cryptos’ Commentary – Non-fungible tokens (NFTs), a bad story

The CCC prides itself on its track record of its robust political impartiality, and an even-handed reporting of the crypto sphere.

This is not an environment for shilling, nor for encouraging a biased and uncritical view of cryptos.

There is always good, and there is always bad, though I am firmly of the opinion that the former heavily outweighs the latter. I do know that not all of you agree with my beliefs.

For those who want to look only at the bad, comes news of an audacious rug-pull, based once again on the timeless motivation that makes scams successful – greed.

SudoRare, a forked protocol of LooksRare named after SudoSwap and LooksRare, offered huge returns for providers of liquidity in the form of LOOKs, XMON and wETH.

Just six hours after launch, all social media sites relating to SudoRare were deleted, and the protocol went dark.

$820,000 of investor’s cryptos were stolen using a back-door added to the protocol.

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There is one positive bit of news.

The ETH stolen has been transferred to three wallets. PeckShield – an on-chain analytics organisation – has identified one of the wallets as having interacted with Kraken, a centralised crypto exchange based in the US.

Kraken fully complies with KYC (know your customer) and AML (anti-money laundering) rules in the US.

The owner of the wallet now holding some of the ill-gotten gains from this rug-pull should be expecting a knock on the door from the Feds anytime soon.