Bored Ape owners sent broke after NFT price collapse

At the time, everyone was pretty excited, including leading tastemakers Justin Bieber and Paris Hilton. A frothy, speculative market emerged and the price of Bored Apes reach highs of 150 ETH or $420,000.

If you owned one, it functioned like a ticket to an exclusive club called the Bored Ape Yacht Club, which threw parties in unexpected places like New York City.

But alongside the Bored Ape brotherhood emerged another culture, which dictated it was very uncool to sell your Bored Ape. To sell your NFT – even if the value had increased a thousand times, and your $250 has turned into $1,000,000 – was beyond passé.

So, to free up money, but avoid the shaming by strangers on the internet, Bored Ape owners began borrowing against their seemingly valuable, very hyped-up assets.

Borrowing money … crypto style

While NFTs stole most of the crypto-thunder these last few years, decentralised finance, or DeFi, has been busy trying to find a use-case for all this new crypto-technology.

They’ve essentially started replicating whatever services traditional banks provide. Borrowing and lending is a big one.

Using a blockchain and a whole series of smart contracts (digital assets that can be programmed to do things if certain conditions are met), crypto developers have built big borrowing and lending pools.

These pools instantly connect those with spare money to those who need it. Based on how much activity there is in the pool, an interest rate is calculated.

The term of the loan is programmed in, and the money changes hands. Most of the loans are overcollateralised, meaning traders need to stump up a lot more than what they plan on borrowing.

There are now thousands of these pools. And one in particular, has been very popular for Bored Ape owners struggling to get their hands on cash.

It’s called BendDAO, and The Australian Financial Review understands it is run out of Melbourne.

Lending rules

This borrowing pool allows Bored Ape owners to post their NFTs as collateral and to borrow as much as 50 per cent of its face value. If your Bored Ape is worth 49ETH, you can borrow around 29ETH at a 19 per cent interest rate.

But just like banks, if your collateral falls below a liquidation rate then the loan will be called in. Your Bored Ape will be repossessed, and in some cases, your debt and Bored Ape will be put up for auction.

But why would this happen? Bored Apes are scarce! There’s only 10,000 of them! And they form some kind of crypto cultural attaché…, you know, just like Picasso. It’s just like borrowing against a Picasso!

Fast-forward to 2023, and money is not as free-flowing as it used to be. Interest rates have been rising, and stock markets corrected. Some US banks fell over. Several major crypto exchanges were found to be eye-watering frauds. Bitcoin came off the boil.

And some Bored Ape owners began breaking the bro-code. Selling pressure emerged. More monkey pictures, that looked alarmingly similar to other monkey pictures, were released. Speculators freaked out. Bored Ape values began to fall.

This posed a bit of a problem for those who had borrowed against their assets. BendDAO began calling in its loans.

But that’s okay right? You just need to pay back your loan (plus the bit of interest) and retrieve your Bored Ape. That way you can just sit back and hope for the price to rise again.

Unfortunately, The Financial Review has been chatting with some Bored Ape owners who admitted they took out some loans against their Bored Apes…to buy more Bored Apes. There are quite a lot of these self-confessed “degens” (which stands for degenerate.)

These forced liquidations cascaded across the market last week.

“It’s been a pretty hectic time, and I think some people are just re-evaluating their life choices,” one Sydney-based Bored Ape owner said.

“But for every person who has been wrecked in this, there’s someone whose made generational wealth. High risk and high reward.”

And now the price of Bored Apes has plunged to record lows…so even if you wanted to break the bro-code and sell your new Bored Ape to pay back your loan…it’s not going to cover the loan at all.

In fact, it’s going to make everything worse.