Blend: The New Peer-to-Peer Lending Protocol

On May 1, Blur, a popular NFT marketplace, announced the launch of Blend (short for Blur Lending)- a lending protocol that enables peer-to-peer lending of NFT collateral. Developed in partnership with VC firm Paradigm, Blend aims to “financialize to scale” and stand out from other lending protocols by not relying on external oracles and having no set expiry date for borrowing positions.

“Blend is a flexible, permission-free variable-rate lending protocol that can support arbitrary collateral without dependence on oracles, and allow any interest rate and loan-to-value ratio that the market can support” states Blend’s white paper.

One of Blend’s standout features is that it functions similarly to a mortgage on a physical asset. Users can buy a percentage of an NFT of their choice if they don’t have the full amount required and finance the rest. This “buy now, pay later” function allows users to purchase NFTs by paying only a fraction of the cost upfront. Customers can repay their borrow at any time and take full ownership of their new tokens. Plus, holders can list the purchased NFT and keep the profit when they sell it.

Not only that but owners of NFTs who wish to get liquidity can borrow ETH against their NFTs without the need to sell them. Before launching Blend, Blur offered “bidding” and “listing” points. Now, the platform adds “lending” points. These rewards can vary per collection, with some collections receiving more points than others. Importantly, Blur replaced listing points with lending points on some projects.

The marketplace currently features three blue-chip collections of varying prices: Azuki, CryptoPunks, and Miladys. For instance, Blend users can borrow up to 42 ETH against a CryptoPunk NFT or purchase an Azuki token by lending 2 ETH on Blur. Moreover, the platform plans to add more NFT collections soon, and community members can participate in the selection by commenting on the tweet and naming their favorite NFT projects to add to the marketplace.

Exploring the Benefits and Risks of Blend

Blend presents some advantages for both parties involved:

• Access to liquidity: Blend connects NFT holders with lenders, expanding access to liquidity for NFT holders and creating an additional reason for collectors to own valuable NFTs.
• Financial opportunities for lenders: Lenders can generate a return on their assets by offering loans to established collections at low rates or to more volatile collections at higher rates, depending on their risk profile.
• Less selling pressure: By reducing the need for NFT holders to liquidate their holdings as frequently, Blend could lead to less selling pressure for existing holdings and more buyers for new ones.

However, as with any financial arrangement, there are also risks:

• Borrower risk: If the loan is not repaid, the accrued interest may exceed the value of the NFT. Additionally, borrowers can be locked into a higher interest rate, up to 1,000% annual percentage yield (APY), if someone else buys the loan.
• Lender risk: If the borrower fails to repay the balance and no other lender is interested in taking over the loan, even at a higher interest rate, the lender will receive the collateralized NFT 30 hours after the auction has been activated. If it reaches this point, the liquidation of the NFT will probably not cover the loan balance.

What’s next?

Blend, part of Blur, operates under the governance of Blur DAO. For the first 180 days of operation, there will be no fees on its platform. Beyond that, the Blur DAO will decide whether to change the platform fees for borrowers, lenders, or both, as well as make decisions on other protocol aspects such as the auction period of 30 hours, and the maximum APY.

In the near future, Blend has plans to expand its offerings with new refinancing options for borrowers and lenders and to become more decentralized, giving users greater control over the lending process. To date, administrative access is provided through a multi-signature wallet that can update the protocol as directed by the DAO and also has the power to halt the protocol in an emergency.

Blend’s arrival in the NFT ecosystem has caused a stir and maybe the fresh start the space needs. However, there are concerns about the potential risks of using a relatively new asset class to “grow the market.”