BendDAO is an NFT liquidity protocol that supports instant NFT backed loans, collateral listing and NFT down payment. The seamless down payment, loan and listing experience creates a perfect closed loop for users, a single NFT liquidity solution.
The BendDAO V2 protocol provides composite lending and leverage. It allows anyone to borrow with overcollateralization, leverage savings on MakerDAO, leverage a stake on Lido, and use restake with EigenLayer derivatives, combining lending and leverage in one protocol!
The V2 protocol has three user parties:
- Lenders place assets to generate passive returns.
- Borrowers can use ERC20 and NFT as collateral to borrow over-collateralized assets.
- Leverage users can use NFT as collateral to borrow assets to create leverage positions that can be used in DeFi, NFT, RWA, etc.
BendDAO v2 Benefits
- Restaking Specialized Loan. BendDAO V2 introduces the first restaking service for NFT holders to earn passive income on specialized loans.
- Cross Margin Lending.
- Isolated margin lending.
- Custom lending pools.
- Custom interest rates.
- Modularity. The V2 protocol is not just a pair of pools, it is a new architecture of smart contracts that can be plug-and-play.
- Comparability. Other protocols can offer their users benefits with the V2 protocol without changing anything in their own architecture.
Cross Margin Lending
The protocol will calculate the account health-factor and this mode is the same as other DeFi lending protocols such as Aave V3. The collateral and the account debt will be treated as one. When the market price fluctuates, users can increase the health factor by adding new collateral to avoid liquidation.
In this model, the liquidation of collateral will be instantaneous. The liquidator will repay the debt on behalf of the borrower and take the user's collateral assets at a certain favorable price.
Isolated margin lending
The protocol will calculate the health factor based on a single collateral (NFT item) and this mode is the same as the V1 protocol.
In this model, the liquidation of collateral will be done through an auction mechanism.
This mode should be used when users believe that their NFT items have some special value, such as being used for PFP.
Leveraged lending
V2 Protocol introduces leveraged lending, based on which users can achieve higher capital efficiency and earn more profit.
Why use leverage:
- Leverage staking and saving. E.g. ETH staking in Lido, DAI savings in MakerDAO.
- Leverage restaking and leverage points specifically. E.g. ETH rstaking in Etherfi, Eigenlayer.
- Leverage farming stablecoins, ETH, and delta-neutral strategies.
- Margin trading on Uniswap, Curve, and other spot DEXes.
Liquidation
The V2 protocol uses a “health factor" for debts. Liquidation will begin if the debt health factor is below 1.
What is health factor. Health factor calculated as (Floor Price * Liquidation Threshold) / Debt with interest. The risk level of the health factor:
- 0.0 < HF < 1.0: Dangerous, borrower maybe lose collateral if the debt is not repaid timely.
- 1.0 <= HF <= 1.5: Risky, borrower should repay partly the debt timely.
- 1.5 < HF < 2.0: Careful, borrower should pay attention and monitor the debt timely.
- 2.0 <= HF: Safe, borrower no need to worry and keep the debt last.
When an account becomes unhealthy, i.e. its Loan-To-Value (LTV) in a given market exceeds the market's Liquidation Threshold (LT), a position in the account can be liquidated. Anyone can accomplish this liquidation by paying off the account in exchange for an equivalent amount in a marketable collateral asset as well as an incentive (bonus).
To avoid liquidation, borrowers can monitor their LTV in real time and either partially or fully repay the loan or add additional collateral to their position.
Liquidators can liquidate up to 100% of the debt in an account and receive the corresponding collateral value, plus a relative incentive.
At this level, the V2 protocol doesn't charge any fee. The entire liquidation bonus goes to the liquidator.
For an isolated lending, when the “health factor” of an NFT loan is below 1, anyone can initiate a liquidation in the form of an NFT auction. The Bidder (liquidator) pays off the entire debt and receives a collateralized NFT in return. The borrower can redeem his NFT to exit the auction by repaying part of the outstanding loan (50% in case of default).
Interest rate models
V2 is an interest rate model (IRM) independent protocol, meaning it can support any interest rate model for loan pool assets. In V2, the interest that borrowers pay on a given asset is determined by the IRM selected when the asset is listed from a management-approved set.
The IRM in Bend is configured to manage liquidity risk and optimize utilization. Borrowing interest rates are determined based on the utilization rate U.
U is a measure of the availability of capital in the pool. The interest rate model is used to manage liquidity risk by incentivizing users to maintain liquidity:
- When capital is available: lower interest rates incentivize loans.
- When capital is scarce: higher interest rates incentivize loan repayments and additional deposits.
Flash loans
Flash loans are loans that can be taken out without any collateral if the borrowed assets are repaid in the same transaction. Flash loans are free in V2, and thanks to the singleton architecture, users of the flash loans feature can access liquidity from all markets simultaneously.
Fee and governance
A fee switch is built into the V2 protocol. Governancecan enable a fee ranging from 0% to 30% of the total interest paid by borrowers for a given loan pool asset.
The role of governance in V2 is intentionally minimized to prioritize a trustless experience. BendDAO governance can vote on the performance of the pool or change its LTV, IRM or other parameters.
