Hey, remember when OpenSea teamed up with Gem and dropped a grenade on Blur with OpenSea Pro? Guess what, Blur took a page from their revenge book and teamed up with Paradigm to drop a nuclear bomb with Blend, Blur Lending. Regardless of whether this is part of the ongoing marketplace war saga between the two rivals, Blur’s Blend might be END GAME. Blur basically created the first NFT pawn shop! You can now buy the blue-chip PFP of your dreams with as little as 2 ETH. I know it sounds like a recipe for scams and debt, spoiler alert it kinda is. Just read on to figure out what the hell this dream-come-true feature is all about!
1/ Introducing Blend: the Peer-to-Peer Perpetual Lending Protocol for NFTs.
Built in collaboration with @danrobinson and @transmissions11 at @paradigm, Blend enables 10x higher yield opportunities than current DeFi protocols and unlocks greater liquidity for NFTs.
Here’s how 👇 pic.twitter.com/uOFC6i3LSq
— Blur (@blur_io) May 1, 2023
What is Blur Lending Protocol All About?
Blur’s newest endeavor Blend stands for ‘Blur Lending’. It’s a peer-to-peer perpetual lending protocol that supports arbitrary collateral as NFTs. I’ll start with an example and then give the fancy definitions. It will make more sense, trust me.
Person A → Wants to lend someone 10 ETH to earn interest and BLUR points.
Person B → Wants to Borrow 10 ETH for some reason → Offers a valuable NFT as collateral to Person A
Person A will lend Person B the money at an interest of 5%. If Person A decides to take back the 10 ETH, someone has to become the lender to Person B. This is when a Dutch auction starts, to fill the position of Person A.
Person C → Decides to become the lender instead of Person A → Dutch auction starts, setting the minimum interest at 5% → Agrees to lend 10 ETH for person B at 7% interest.
If no one becomes Person C, Person B will lose his NFT. Just like a pawn shop.
The Blur Lending protocol is created in collaboration with Dan Robinson, who kinda is a big deal. In case you didn’t know he is the :
- head of research at venture capital firm Paradigm
- investor in decentralized exchange (DEX) Uniswap version 3
- contributor to building the marketplace protocol Seaport.
- lead investor in Blur’s marketplace.
Features of the Blend Protocol:
Ignore all the complicated finance lingo, I got you. In a nutshell, the Blur lending protocol matches people who want to borrow against their non-fungible collateral with whatever lender is willing to offer the most competitive rate.
- Blend loans have fixed rates and never expire.
- Borrowers can repay at any time.
- lenders can exit their positions by triggering a Dutch auction to find a new lender at a new rate.
- If that auction fails, the borrower is liquidated and the lender takes possession of the collateral.
How to Use Blur Lending?
Ok, cool now where can you use blend? Easy. Open Blur’s website, log in with your metamask. First you need to know Blur offers Blur lending for a few collections. Currently, Azuki, Cryptopunks, Milady, BAYC , and MAYC are available. BUT Blur promises to add more in the future. Anyway, choose a collection then press on the option of “loans” next to the items bar. The rest is self-explanatory.
- When you lend ETH → you earn interest + Lending Points.
- Lending Points are worth as much as Bidding Points.
- You can make loan offers using your Blur Pool funds, even while bidding at the same time.
Start by choosing the max amount of ETH someone can borrow using a single NFT as collateral. The higher your Max Borrow, the more points you earn. Blur recommends a max borrow amount less than 95% of the floor price.
Choose the APY you’d like to earn on your loan. The green bar will show when your loan offer is competitive for certain borrow amounts. Lower your APY to maximize your Lending Points.
After a borrower accepts your loan, their NFT will become locked. You’ll start earning interest in ETH.
When you close a loan, the borrower will have 30 hours to repay your loan or refinance it with another loan offer. If the borrower doesn’t repay or refinance your loan, you’ll get their NFT instead. *This normally will only happen when the NFT’s floor price falls below your loan amount.
What is the Risk of Blur Lending?
Blur lending sounds too good to be true. Well, here’s the catch. Think twice about these two risky mechanisms before you embark on using Blur lending:
- The mechanism by which lenders exit their positions through a Dutch auction
- The process of taking out loans to purchase NFTs on the platform
The risk involved for the borrower can be significant; they have a 24-hour period to pay their loan back if the lender triggers a 30-hour loan auction. If they can’t, the interest rate on the loan can increase significantly to make it appealing to other potential lenders. Lenders also run the risk of not being able to find someone to take over the loan in that 30-hour timeframe. While the lender would receive the NFT as collateral for the loan at this point, its value is unlikely to cover the amount of the loan they gave out.
In an interview with Coindesk, Jonathan Gabler, co-founder of peer-to-peer NFT lending platform NFTFi, claimed that Blend’s initiative to help introduce liquidity into the market is innovative. However, incentivizing traders to take out loans at loan-to-value (LTV) which is troublesome for highly volatile digital assets, is very dangerous.
“Unchanged, the current incentive design will likely lead to bad outcomes for borrowers such as mass defaults or liquidations of high-risk loans, flush NFTs into the hands of point farmers, and in consequence, may lead to much higher market volatility,” said Gabler. “Existing peer-to-peer protocols tend to be more borrower-friendly and lead to healthier loan markets.”
Blur’s Blend: Should You Try It?
Although Blur lending may help increase the liquidation of NFT markets , it’s not a feature for an amateur trader to “ape” into. The danger is that NFT lending platforms such as Blur allow collectors to purchase tokens with funds they don’t have. This creates liquidity risks down the line when collection floors or cryptocurrency prices crumble.
Systems like Blur lending are basic knowledge to experienced traders, but fairly new to most NFT traders. Now all of a sudden they can afford to buy that shiny PFP they have been dreaming of. A week into into blend, we are already seeing massive volumes and floor price jumps for some collections. The loan volume so far is both impressive and scary!
Since launching last week, Blur Lending (Blend) has facilitated 47,757 ETH ($88M USD) in loan volume.
This is more loan volume than all other NFT lending protocols combined in the same time period! pic.twitter.com/y4bDJpY6D5
— Blur (@blur_io) May 9, 2023
The main issue is that the NFT market is very small market. Therefore, relatively small moves can trigger massive moves. This not only influences the single trader like in other leveraged trading. What I’m trying to say is you shouldn’t get the chance to get a loan for a Ferrari if you can’t afford the repayments! The basic fear here is that the failed risk management from amateur traders will break the NFT market.
Should you try it? it’s up to you, but I ask that you fully understand the risks of borrowing/lending NFTs before you dive in just to earn a few extra $BLUR points… It might break you too and at the very least thoroughly read Blend’s whitepaper.