BendDAO First Discusses Liquidity Crisis: "The Community is Our Backbone"

Author: Mint Ventures

Host: Blair Zhu, Brand Director of Mint Ventures

Guest: Splinter, Head of Development of BendDAO

Interview Date: November 1, 2022

Original Interview Link: WEB3 Founders Real Talk with BendDAO Recap

Interview Video: WEB3 Founders Real Talk with BendDAO

Interview Audio: WEB3 Founders Real Talk with BendDAO Conversation with BendDAO

Blair: Hello everyone! Welcome to the Web3 Founders Real Talk show. I’m Blair, and today our guest is Splinter, the Head of Development of BendDAO. He will share with us his insights on Web3. Welcome, Splinter!

Splinter: Hi Blair, thanks for having me.

Blair: Could you briefly introduce yourself and the basics of BendDAO to everyone?

Splinter: Sure! My friends call me Splinter. Currently, I’m in Europe working on product prototyping. I handle UI and UX, and I’m also the head of development for our platform.

I have been deeply involved in this field for over 20 years now. As someone born in the 80s, I have grown alongside the digital revolution since its inception. When I was still in the Web2 space, I worked in development and design across various industries, including tech, finance, social media, culture, telecommunications, and more. Later, I learned about the crypto space and, after months of in-depth research and study on its historical origins and trends, I became familiar with Layer 1 technologies and protocols built on Layer 1.

Eventually, I transitioned into being an investor and user, and my mind was filled with everything about blockchain and what it could bring to the future. I started connecting with colleagues who were also interested in blockchain, meeting friends from around the world. Around 2016-2017, I joined my first blockchain startup, and that was when I completely left the Web2 space and officially entered Web3. Over the past few years, my team and I have focused on decentralized finance, and BendDAO is our latest achievement after more than a year of research. It has been live and operational for about seven months now.

The main goal of BendDAO is to provide liquidity for blue-chip NFT holders. It is also the first decentralized liquidity protocol based on NFTs. NFT holders can quickly borrow Ethereum by staking their blue-chip NFTs. Meanwhile, Ethereum lenders or depositors provide liquidity and earn passive income from it.

For borrowers, there is no repayment date; they can repay at any time, and the interest rate changes with each new block. That’s the main logic of BendDAO. On top of that, we are continuously developing new features for both borrowers and lenders.

Blair: That’s great! Thank you for sharing the basic information about yourself and BendDAO. Now let’s get into the main topic of today’s discussion. As you just mentioned, it’s clear that you are truly passionate about blockchain and Web3. At the same time, we see the sparks of DeFi and NFTs colliding, which I believe provides a lot of possibilities for liquidity, and BendDAO is definitely a typical example of this process.

As I understand, it launched in 2021 as the first decentralized liquidity protocol for NFT pools. What motivated you and your team to create it? And why did you firmly believe in blue-chip projects from the very beginning?

Splinter: Well, we all experienced the ICO boom, which is the initial coin offering. We participated in so many ICOs because we thought it would give us a chance to earn a lot of profits later. Through these ICOs, we learned about GAS (transaction fees). At that time, we were experiencing the GAS wars, where you had to increase your GWEI for every transaction if you really wanted to get the corresponding tokens. Later, there were more and more GAS wars, like with CryptoKitties, where the NFT project completely clogged the Ethereum network, causing all transactions to come to a standstill. This state lasted for a while, and everyone was minting NFTs, which then became a trend.

At that time, we noticed that the transaction fees on platforms like Opensea and Looksrare were very high, but these platforms had significant NFT trading volumes and traffic, much higher than, say, Uniswap. So we bought a lot of NFTs, like some OG Crypto Punks, Bored Apes, Azukis, and others, all backed by large community groups.

We didn’t quite understand why people were paying such high prices for these NFTs because we initially saw them as just "hyped-up little pictures" (JPEGs). But of course, we wanted to participate because who wouldn’t want to be part of the hype? These NFTs were everywhere, spreading wildly on social media, mainly on Twitter and Telegram, and some in private Discord channels. Eventually, we tried to sell these NFTs to make some profits and listed them on Opensea, but we waited for weeks, even months, before selling just one. That’s when we had the idea: why isn’t there a product like AAVE that allows users to quickly borrow by depositing ERC20 tokens as collateral and also allows borrowing against NFTs? After all, the value of these NFTs is measured by their floor price, and the price trends of NFTs are very similar to ERC20 tokens. So we started researching all related protocols, and then we invented or developed the BendDAO protocol.

Now we are trying to bring this unique product to impact the entire industry. As for why we firmly believe in NFTs, I see NFTs as modern art. They have a significant impact on culture and bring together people from different cultural backgrounds, whether in finance, IT, art, gaming, or culture. As we know, all human art is collectible, not limited to famous paintings and sculptures, but also cars, watches, land, buildings, photographs, various tools, and artificial artworks. It’s like owning a piece of history, and over time, the older it gets, the more valuable it becomes.

For example, when Picasso was alive, buying one of his paintings might have cost a few hundred dollars, but now its value can reach hundreds of thousands or even millions, and the transaction prices keep increasing over time. Therefore, I firmly believe that NFTs follow the same principle; their value will be elevated over time by their cultural attributes, and you can easily verify their authenticity, making you the true owner, which makes it even more amazing.

I also suspect that soon, but not right now, NFTs will become particularly important. Because they have a lot of utility, let’s not forget the ongoing first metaverse revolution, where you can make NFTs work in the virtual world, like using them as avatars or creating art in games for decoration. They call this "skins" in games, and I believe these will eventually come to fruition one day. So I’m really happy to be part of this and look forward to the future.

Blair: Wow, that’s really impressive. Indeed, I think NFTs are bringing more and more people into this industry, allowing them to see the beauty of it.

We’ve also heard that BendDAO has made a lot of progress, such as collateral listings, purchasing NFTs through down payments, and Ape staking is about to launch, right? So what is BendDAO’s daily work style that allows for continuous output? Because from your description, it feels like BendDAO has been on a good trajectory and has launched many products, even in the current market environment, which is not very favorable.

Splinter: Indeed, our daily work style… if I had to say, I think everyone is a bit of a "workaholic," and everyone manages their personal life and work well, which allows us to continuously add new features and some auxiliary products, optimizing the interface for BendDAO. As you mentioned earlier, we’ve introduced a down payment option for NFTs, which means users can obtain complete NFTs even without enough money. They can deposit just a portion of the listing price and quickly get a loan for the remaining amount, allowing them to gain ownership of the NFT, and they will have some time to repay the remaining balance.

Later, we will deploy buy orders, where you can not only get the NFT at the listing price but also offer a more reasonable lower price to the seller. If they accept, the price you pay for the NFT becomes cheaper. One of BendDAO’s strengths I want to introduce is that you can still participate in airdrops or utilize other functionalities of your NFT, even if it is locked in our protocol as collateral. So currently, we have two major upgrades, two big things: one is opening APIs and SDKs. We still want to provide these interfaces for other projects and developers, allowing them to integrate BendDAO into their own platforms or use these powerful tools to develop new projects. Of course, they can also utilize BendDAO’s liquidity, so we look forward to sharing these with everyone soon.

The second big thing, as you just mentioned, is Ape staking. We all know that YogaLabs and Horizon are about to launch this feature, where Ape will be tied to Bored Apes, including Mutant Apes, and even adding a fourth pool for Bored Kennels Apes. So there will be four pools: one for staking ApeCoin, one for Bored Apes, one for Mutant Apes, and the fourth will be a combination of all. What we are doing is developing a protocol that allows our users and others to stake together, so our borrowers will use their staked NFTs instead of the original NFTs for staking, which increases security to some extent while also enhancing utility. They don’t need ApeCoin; they can stake with other ApeCoin holders and share the corresponding rewards. For example, if I have a Bored Ape as collateral for a loan but don’t have ApeCoin, I can list an order in any pool and set the corresponding staking conditions to see if I can find someone who wants to stake their tokens but doesn’t have the required NFT, and we can reach an agreement to stake together and share the rewards.

Blair: I can imagine the workload is significant, and this feature is quite unique; it’s something we haven’t seen before. I must say it’s clear that you are indeed a group of workaholics.

So, during this process, have there been any challenges or obstacles that you had to overcome or confront? Especially in the current bear market, project teams might face more challenges. Do you have any advice or key points to share with other practitioners?

Splinter: Of course, we have always faced challenges, but so far, I can say we have overcome them, and I’m quite happy about that.

However, there was one major challenge that kept us in the spotlight for several weeks. Everyone was talking about us, but it was mostly negative, with very few positive comments. Some influential accounts even spread false information, claiming we threatened the market, threatened the NFT market, and that BendDAO was a disaster, etc.

What happened at that time? The NFT market suddenly crashed, not only bearish on ERC20 token prices but also causing all NFT floor prices to plummet, including all the blue-chip NFTs supported within BendDAO.

Since we calculate our users' loan health factors based on the floor prices of all NFTs, the loan amounts compared to the floor prices suddenly rose from 30% or 40% to 80% or 90%. This triggered our emergency mechanism, and loans entered the auction phase. All NFT borrowers had to repay part of the remaining balance to retain ownership of their NFTs. This panic spread rapidly, and unfortunately, all lenders began withdrawing their deposits from our pool, leading to a lack of liquidity.

You can imagine that we spent several sleepless nights during that time. We were working 24/7 with our community to find solutions. Everyone was panicking and very scared. We didn’t sleep at all, but as a DAO, I think we handled it well. We communicated with the community, and they voted to lower the liquidation threshold and extend the liquidation window. After the voting ended, we executed the results, saving many NFT loans from being liquidated. The news spread, and lenders regained trust in us and began depositing Ethereum back into our pool. After all, our annual interest rates and the BendDAO protocol are still quite attractive compared to other staking providers.

So I believe that in the future, we will continue to solve various problems and challenges, listen to the voices of the community and users, stay closely connected with them, follow the right path, make plans, and implement them to further develop, setting or adjusting protocol parameters to better benefit all participants in the ecosystem, whether they are borrowers, lenders, liquidators, or stakers, everyone can benefit.

We are ready for the bull market, and our marketing strategy is also prepared. We hope to expand our influence, attract more users, and bring more liquidity. Our vision is to make BendDAO integrate with other projects, or in other words, we want BendDAO to become "irreplaceable." We are continuously developing APIs and SDKs, open-sourcing our code to allow other projects to integrate our solutions, just like X2Y2, where you can use BendDAO’s down payment method to purchase NFTs through X2Y2. I believe we will join more projects and allow these projects to be used as collateral, continuously innovating and improving. Our team is keeping up with market trends and doesn’t want to miss any airdrop opportunities for blue-chip NFT holders, like our current focus on ApeCoin staking.

We need to be exceptionally agile, build new tools, rapidly release new product features, and maintain ongoing dialogue with our community. I think we have been doing well, and that’s the way of working for a DAO.

Blair: Yes, it’s great to see that you really resolved the previous liquidity crisis and have been doing well. I imagine that must have been difficult because many people might have doubted you at that time. But I think that’s the beauty of entrepreneurship: facing difficulties, trying to solve them, and sometimes enduring pain, and once you get through it, you realize it’s not so bad.

So my next question is about how to capture the right market insights to develop a truly game-changing product that meets users' needs. Because we’ve also seen some builders in the industry launch their products but only make small waves. So how can things be done right?

Splinter: Yes, to be honest, I don’t know either, because I think it’s about trust and community support.

The difference between Web3 and Web2 lies in decentralization, trustlessness, and permissionlessness. Because as long as you want, you can have anonymity, and there are no intermediaries deciding who to support or oppose, unlike banks or centralized exchanges that can control your funds. Web3 is open-source, with clear protocol audits and transparency. But the real logic is that nothing can change it, so it will only execute as planned, which is what I think is the most beautiful aspect.

We also have passive income options that far exceed the returns offered by centralized banks. For example, this is very attractive to investors. In BendDAO, even if you don’t have any NFTs, you can still earn income by depositing your Ethereum into the borrowing pool and earning returns. You can also provide liquidity by staking BEND and Ethereum on Uniswap and profit from it. Then you can deposit the liquidity pool tokens into BendDAO to earn additional interest. You can also lock your BEND long-term, and veBEND can grant you voting rights.

So I don’t know if our product meets the market; it’s hard to measure because many indicators need to be considered. However, I believe BendDAO has the potential to adapt to market needs. If it hasn’t yet, we will stay true to our original intention and continuously expand to naturally realize this vision.

If I didn’t have such firm belief, we might not even be here to influence or change the DeFi space, and I wouldn’t be sitting here. So we keep moving upward, facing everything with a positive attitude. We do our work, dreaming of one day realizing these ideas.

Blair: Hahaha, that’s really interesting. So as you just mentioned, listening to the community’s opinions, identifying the real needs of the community, and keeping up with trends to understand what they truly need, just like you said, lowering the barriers to entry to attract more users even if they don’t have NFTs, trying to increase adoption rates, I think that’s the answer.

So what advice would you give to those trying to become Web3 entrepreneurs or just looking for a job in Web3? Do you have any practical methods to share with them?

Splinter: I can share my perspective.

I believe that if you really want to create anything, you need to find a problem because if you have that problem, most likely many others do too.

Then you will connect with those who share your vision to find a solution to that problem, and then you start building your product. Your community is also very important; I think that’s the key to success. Of course, if you are completely new and don’t understand blockchain at all, you will need some time for in-depth learning. I think everyone goes through this process: a lot of reading, researching, and learning about the history, trends, and smart contracts of different blockchains.

Because we have been in the industry for 7 or 8 years, and some other colleagues even longer, we still learn a lot every day. We must stay in sync and focused. What’s that saying? "Trust the process."

Blair: Indeed, I think it’s a challenging learning process, at least it was for me when I first started. I think this can be a challenge for everyone because Web3 is much more competitive than Web2. It’s an emerging industry where many new things happen every day, with many new ideas being born, a lot of innovation, and hype. So I completely agree with what you said. You have to embrace those challenges, read as much relevant knowledge as possible, and do a lot of research. But fortunately, a lot of this can now be found online, like podcasts/websites; their learning materials are really well done. So I think now is a great time for them to enter the industry, and those newcomers can learn more about it.

Now let’s move on to the next topic. We’ve talked a lot about the BendDAO product itself, like how to deal with challenges.

It’s clear that NFT-Fi is thriving. We see many entrepreneurs still committed to deepening their projects in this field, like Sodium and LlamaLend, but I think this sector is still in its early stages. Since we just talked about challenges, BendDAO must have put in a lot of effort to overcome the previous credit tightening issue. How will you manage liquidation crises in the future? Because it’s well-known that we are still in a crypto winter, and the market is struggling to rebound on a large scale, even for those blue-chip projects or those with a certain reputation.

Splinter: Of course, we have thought a lot about this. I believe that the underlying liquidation crisis is actually a good test, and we have learned a lot from it.

I want to say that BendDAO’s loan liquidation and the collateral NFTs may be different from the traditional leveraged ones you use on centralized trading platforms. In traditional centralized trading platforms, when the price moves against you, you lose all your collateral. But in BendDAO, once your loan is auctioned, any user can bid on your loan, even you can, as long as you use another wallet. So you can redeem it again in the auction, and it doesn’t have to be a large amount; you can partially repay to save your loan and extend your time. It’s not like traditional leveraged loans that liquidate all loans without warning.

In BendDAO, you can also register for our notification feature. If the health factor status changes, you will receive an email. When your loan enters the auction phase, we will also notify you by email, giving you time to handle it; theoretically, that’s how it works. It’s even possible that if a well-known NFT enters the auction phase, its previous owner can ultimately profit.

So I never believed that the DeFi space would collapse; on the contrary, I think it will grow stronger and gain more adoption. More and more smart people are participating every day, the user base is continuously increasing, and it’s becoming increasingly popular among the younger generation. This is a great investment opportunity, and it’s also full of fun, so I think while we talk, history is being written.

BendDAO’s goal is to become irreplaceable, leading the industry and the market. We are transparent; you can completely track our daily operations and development process on deWork. We also invite Immunify, bug bounty hunters, and white hats to help us find product vulnerabilities. We reward them according to the agreements with the community and BEND holders; they are all major components of our governance. So I believe the trend of NFTs and Web3 is so strong that we will continue to attract public attention and become increasingly popular.

Blair: Yes, it sounds like a reliable plan. As you just mentioned, BendDAO has adjusted some parameters, released more liquidity, and lowered the liquidation threshold for collateral, even temporarily during auctions. This approach can certainly enhance lenders' confidence to some extent, but it may also lead to more hasty liquidations. So how do you balance the interests of these stakeholders? Because in this field, you must consider multiple interests.

Splinter: Yes, that’s right. We don’t know what will happen next, but rather than saying we have experienced those things before and learned from them, I believe we will not completely change our working style.

We monitor a lot of data and have put a lot of effort into calculations, even predicting many possible scenarios. I am confident that we will achieve our vision and roadmap. One day, we hope that all users of BendDAO will benefit from it. If any users do not benefit or if a crisis situation arises, we will tally the numbers and communicate with the community and token holders to find the best solutions possible, implementing corresponding changes to resolve issues, just like we have always done. We want to create products like AAVE and Binance, but in a way that combines both. We will continue to expand and gather more projects, invent more useful tools, and increase the liquidity we offer, continuously optimizing and improving as the blockchain evolves, adjusting day by day.

So my answer is to go with the flow but be prepared for everything.

Blair: Yes, of course, it’s not easy to satisfy everyone in this circle, but it’s still great to see that you have such a comprehensive strategy. Ultimately, listening to the community’s voice is always key.

I have one last question, which may be the most difficult. Although the market value of NFTs is much higher than last year, liquidity has not kept up. How do you view these challenges? Or do you perhaps see them as opportunities? How do you see the future of NFT-Fi?

Splinter: Good question, I don’t know either.

Currently, our total locked value is over 70,000 Ethereum. There are about 30,000 Ethereum available for borrowing, and there are roughly the same number of NFT collaterals. We currently support eight types of blue-chip NFTs, with about 100,000 unique NFTs being used as collateral. The annualized returns for Ethereum lenders are also very attractive. We just need to increase the product’s visibility; you can also bid and possibly get a very good deal on an NFT. We also provide rewards for the first bidder if the borrower repays their loan. So this is another interesting profit opportunity. We have managed to overcome all difficulties in the bear market, and I believe that although we are slow, we will definitely enter a healthy market environment, just as you mentioned.

We have the products that the NFT space desperately needs, and we will continue to cultivate and widely promote BendDAO. After all, we are still a very young startup, and growth will come naturally. So why can’t BendDAO one day reach a market value of 100 million dollars? NFT-Fi will definitely grow in the future; it’s inevitable, and so will BendDAO.

Blair: We will wait for that day, we definitely will. It’s been a vivid narrative and a very feasible solution.

I’m really excited to see BendDAO making good progress. I think you have a clear ecological footprint, along with practical solutions to those challenges and dilemmas, as well as a coherent business line.

We certainly look forward to more explorations from BendDAO in the near future! Thank you very much for your sharing today, and thank you for your valuable time.

Splinter: My pleasure, my honor.

Blair: Thank you very much!