An alarming trend has emerged in a daring venture into the world of Non-Fungible Tokens (NFTs), where art and technology converge. NFT borrowers, enticed by the allure of quick crypto gains, have faced devastating consequences due to liquidations, leaving them reeling with substantial losses. These unfortunate events are cautionary tales about the risks of leveraging NFTs as loan collateral.
According to a recent report, disheartening figures have come to light in the 25 most distressing NFT liquidation cases thus far. Once optimistic about using their NFT holdings as a financial safety net, borrowers discovered that failure to meet loan repayment deadlines could lead to unprecedented losses. The losses ranged from $26,756 to a jaw-dropping $194,861 per debtor.
The impetus behind these cataclysmic losses stems from an inability to meet loan obligations promptly. Paradoxically, borrowers faced liquidation even when the NFT collateral exceeded the debt. The grim reality showcases a dichotomy wherein borrowers could have potentially fared better by directly selling their NFT assets instead of succumbing to the perils of loan default.
The scale of devastation becomes starkly evident when considering the proportion of NFT collateral value lost during liquidations. Ranging from 15.3% to a harrowing 91.3%, with an average of 46.1%, these numbers underscore the gravity of the predicament. It’s an eye-opening revelation highlighting the perilous terrain borrowers traverse when seeking to capitalize on NFT value.
The NFT marketplace landscape is not exempt from these unsettling narratives. Most of the worst NFT liquidation episodes occurred on NFTfi, a platform that facilitated these unfortunate events. However, a singular exception arose with the Bored Ape Yacht Club (BAYC) #3455-backed loan, which ended on X2Y2.
Within this distressing tapestry of liquidation, a distinct pattern emerges. Bored Ape Yacht Club-backed loans take center stage, representing a substantial portion of the total losses. A staggering $754,793, accounting for 45.7% of the top 25 liquidation losses, was attributed to these 10 BAYC-linked loans, showcasing the vulnerability of even the most coveted NFT collections.
Larva Labs’ Autoglyphs occupy a significant place in this disheartening narrative. Contributing to $372,938 in losses (22.6%), Autoglyphs underscore that even lesser-known NFTs are not immune to this phenomenon. Similarly, Wrapped CryptoPunks, a notable collectible, suffered losses of $177,704 (10.8%).
