NFT
NFT markets are much quieter these days, but “blue chip” NFTs are still quite pricey. Granted, prices have crashed massively — over 90% — from the peak days of Justin Bieber buying Bored Ape for a million dollars, but they’ve held pretty steady since the plunge into reality.
Of course, even through the tumult of dire market conditions, blue chips have held their value much better than the average digital asset. For example, the floor price of a CryptoPunk is still hovering around 50 ETH, despite the subdued sentiment.
But bragging and speculative flipping aside, many of the most expensive digital images haven’t shown much utility in the past. A huge amount of value just sits there tied to a JPEG, waiting for someone to unlock it somehow.
Just next door, in the DeFi space, a huge market has exploded in recent years with participants profiting from lending and generating interest in peer-to-peer and peer-to-pool environments with stablecoins as the primary medium.
Read more: How Does NFT Loans Really Work? A beginner’s guide
Both spaces attract risk-tolerant traders, but DeFi and NFTs existed in largely separate neighborhoods from the Web3 environment. A few NFT-DeFi hybrids have sprung up in recent months, but many have faced liquidity and volatility challenges, reducing lenders’ willingness to put up money for borrowers.
So it only seems logical that the largest NFT trading platform by volume, Blur, would jump in and try to merge the two elements of the market with their new solution, Blend.
Shortly after the platform launched, Blur founder Pacman spoke to Blockworks about the peer-to-peer lending platform, which uses NFTs as collateral. On a recent Empire podcast, he says things are off to a good start, with Blend already dominating the competition and becoming the largest NFT lending protocol by volume and user share within 24 hours of launch.
On the hunt for higher yields
The founder explains how borrowing against an NFT works on Blend using CryptoPunks as an example. Being an “OG blue chip collection,” he says, “is probably one of the safest collections to lend against” in the eyes of the market.
A lender could make a loan offer of 50 ETH, says Pacman, after which a Punk owner could borrow 50 ETH against his assets. “Let’s say it was a loan offer of 50 ETH at 20% APY. That means once you start borrowing that 50 ETH, your interest will accrue at 20% per annum.
“If you held that position for a year, your total debt you would owe would increase from 50 ETH to 60 ETH.”
Pacman explains that the average yield in DeFi protocols is typically closer to four to six percent — a far cry from what is currently possible with NFT lending on Blend.
“So the returns are much higher,” which isn’t necessarily due to the nature of NFTs as an asset, Pacman says, but more to the type of borrowers in the space who have higher risk tolerances.
“Lenders would make these loans because, based on their risk tolerance, they can earn a nice yield on their ETH that is much higher than they can get in traditional DeFi.”
Read more: NFT Investing explained for today’s market
Buy now, pay later
Another interesting mechanism that Pacman explains about the Blend platform is the “buy now, pay later” option.
Blend provides liquidity with a small amount of capital upfront, allowing buyers to pay the rest of the cost later, Pacman explains. “So for example, let’s say there’s an NFT that costs 10 ETH. You could provide one ETH from your own collateral and then borrow nine ETH to make the purchase.”
It’s “a huge unlock,” he says, “because people can now buy very expensive NFTs with a lot less upfront capital.”
He compares it to the Web2 environment, where ‘buy now, pay later’ deals are commonplace. If a consumer buys an iPhone, he says as an example, he can use a payment plan over a period of 24 months with 0% interest.
“The reason that’s possible is because the ‘buy now, pay later’ functionality is so useful,” says Pacman, “that the sellers will actually subsidize those 0% interest.”
“The incentives of the Blur protocol subsidize that 0% interest phenomenon, just as it happens in Web2, where the merchant subsidizes it.”
It’s a complex new tool in a field full of possibilities – and plenty of dilemmas between risk and reward. Pacman explains who he thinks will perform best with the new lending tools. “Ultimately, it’s the same with every market. The liquidity providers who will do their best will be the ones who take the time to understand the market.”
