NFT lending has been around for a while in the decentralized space. It involves borrowing cryptocurrencies with NFTs as collateral. This kind of borrowing usually comes with pre-defined agreement terms binding lending and borrowing transactions. This concept promotes the popularity and functionalities of NFTs, giving the NFT landscape a significance surge in trading and adoption. Blur has modified this NFT lending concept with its flagship Blend protocol.
What is Blur?
Blur is a top NFT marketplace-cum-aggregator founded by Pacman (Tieshun Roquerre) in October 2022. It was built on the Ethereum network and has recorded impressive trading volume in the past few months of its advent compared to leading marketplaces. According to DappRadar, Blur has recorded over $600M in trading volume over the past 30 days.
Blur has not been around for so much time. Still, its founders and developers understood the NFT landscape and marketplace ecosystem to be able to come up with a unique and innovative platform. One of Blur’s innovative concepts is its Blend protocol.
What is the Blend NFT Lending Protocol?
‘Blend’ is a compound of ‘Blur Lending,’ and represents a P2P perpetual NFT lending protocol on the Blur ecosystem that allows users to borrow ETH with NFTs as collateral. The Blend initiative was birthed alongside Paradigm, a notable web VC, with a concept to pave the way for NFT traders to finance NFT purchases with loans.
Launched on May 1, 2023, Blend swiftly became the top lending protocol on the Ethereum network by users and volume, with 8,875 ETH loaned in its first 24 hours. Since then, the total loaned ETH has grown to over 160,000. The Blend protocol offers two exciting products: the Buy-now-pay-later (BNPL) and P2P perpetual lending.
The impressive buy-now-pay-later protocol is the first in the decentralized space. According to this initiative, NFT investors, traders, and enthusiasts can access expensive blue-chip NFTs with a small part or down payment. This initiative paves the way for investors and traders to profit from a potential profit window.
A trader can use this initiative to buy an NFT with a small down payment, wait till the token appreciates, and sell for a profit. For example, a trader can buy a piece of the Azuki collection at 1.8 ETH. The token then appreciates after some days to 3.5 ETH. The trader will sell the piece at 3.5 ETH, pay whatever remains from the BNPL purchase, and pocket 1.7 ETH as a profit.
P2P Perpetual NFT Lending
This P2P perpetual lending is the flagship collateralized lending that allows users to borrow ETH directly from individual lenders, using specified NFTs as collateral. This concept went viral immediately after its launch, propelling Blur to the top spot in the NFT arena. According to Dappradar, as of May 26, Blend has recorded in excess of 169,900 in volume over a total of 15,000 individual loans.
At the launch of Blend, only three NFT collections (Azuki, CryptoPunks, and Milady Maker) could be used as collateral, but the DeGods collection was added to the list a few days later, with more to follow. As of the time of this report, there are 1334 active loans worth 8,859 ETH, and Blend commands a massive 82% share in the NFT Lending market.
What Makes Blend Unique?
Unlike most lending protocols that pool lenders’ assets to a liquidity pool before lending to borrowers, Blend runs a P2P protocol, leaving no room for centralized governance or control. Blend puts lenders in 100% control over their assets and gives borrowers 100% control in evaluating their risks and making informed decisions.
Recall that oracles are software programs that provide verified external information or data. They will evaluate NFT collateral based on real-time market value in NFT lending. Using oracles can sometimes be lopsided, favoring one party over the other. Blend doesn’t use oracles to establish fairness since it is a P2P protocol. Borrowers post their collateral offers, including interest rates and loan-to-value ratios, and lenders comfortable with such terms apply. It’s based on mutual agreement; nothing is imposed.
Off-chain P2P Matching
Lenders and borrowers are not matched on-chain; matching occurs off-chain, while transactions occur on-chain.
Fixed Interest Rates
The interest rate usually fluctuates in every lending protocol, but they are not on the Blur lending protocol. The fixed interest rate lets lenders understand the loan conditions and make informed decisions.
Unlike some protocols with debt expiration, Blend loans can be rolled at a higher rate, with more lenders taking over. Blend automatically rolls a borrowing position, especially if the lender is willing to extend the expiration by renewing the loan, making it continuous. However, suppose the lender wants their money (ETH) back, and the borrower cannot pay (they can’t compel the borrowers to pay). In that case, the lender can trigger a refinancing auction, paving the way for another lender to take over the loan.
Imagine a scenario where the lender triggers a refinancing auction and can’t find another lender to take over the loan. In Blend, such debt will be deemed insolvent, and the borrower is liquidated. The existing lender will initiate a transaction and become the owner of the collateral (NFT).
No Platform Fees
Blend doesn’t charge any platform fees on borrowers or lenders, at least in its first six months. However, platform fees, alongside other parameters like maximum interest rates and auction formula, can be introduced or adjusted where needed by the DAO.
Working Mechanisms of Blur’s Lending (Blend)
Blend begins with the lender signing an off-chain offer to lend a particular amount of ETH at a fixed interest rate and expiration against a specified NFT collection (e.g., Azuki, Milady, CryptoPunks, or DeGods). This offer is published on an off-chain offer repository. A borrower with an NFT to collateralize will surf through available off-chain offers and choose the one that suits their preference.
When both parties have agreed on their terms, they will create an on-chain transaction in line with the lender’s offer; the NFT will be placed in a vault with a lien. Then the borrower will receive the loan (ETH) from the receiver. The borrower can close the debt position before expiration by repaying the loan alongside the interest and redeeming his NFT.
However, suppose the loan is not repaid until expiration, and the lender needs the fund. In that case, the protocol will trigger a refinancing auction, allowing another lender to take over the loan as a new lender by paying off the first lender. However, if no lender shows interest during the refinancing auction, the debt position will be regarded as insolvent, and the lender will possess the NFT based on the lien placed on it.
Blur has paved the way for another exciting era in the decentralized landscape with its Blend protocol. The protocol allows users to borrow ETH from lenders willing to earn interest on their assets. The flexible protocol enables lenders and borrowers to set their preferred terms and negotiate off-chain before transacting on-chain. If a borrower intends to change the amount borrowed or get a better interest, such a borrower can take a new loan against the collateral and use the principal from the new loan to offset the old loan.
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