NFT
Pro-focused non-fungible token (NFT) marketplace Blur is making headlines again, this time for entering the NFT lending space. The move has raised questions about its broader impact on the market.
On Monday, Blur launched Blend, a peer-to-peer NFT lending platform that allows traders to rent out their NFTs to collectors who want to purchase blue-chip NFTs with a smaller down payment. Holders hoping to make some extra cash can place their NFT, receive loan offers, and then transfer their token to the tenant via a smart escrow contract for a set period of time – similar to a digital pawn shop.
According to Blur, Blend aims to help introduce new buyers to its ecosystem by lowering tax barriers to entry for popular NFT collections. As a result, it helps boost liquidity in the larger NFT ecosystem by increasing the number of traders and transactions.
It’s possible that Blend contributed to a short-term rise in rock bottom prices of some blue chip NFT collections, according to data from NFT marketplace OpenSea. Since May 1, the launch date of Blend, the bottom price of the popular Bored Ape Yacht Club collection has risen from 47 ETH, or approximately $93,500, to approximately 50 ETH, or $99,400. As for the Mutant Ape Yacht Club, the bottom price rose from about 10.5 ETH, or $20,900, to 11 ETH, or $21,900.
While it looks like Blend could help push the NFT markets upwards, it may not be a product every amateur trader would be happy to “mimic” to. The danger is that NFT lending platforms like Blur allow collectors to buy tokens with money they don’t have, creating liquidity risks when the collection floors or cryptocurrency prices crumble.
Twitter user Carl_m101, founder of the NFT collection Sky Scooters, shared a thread explaining some of the risks of Blend, where a major price jump could trigger a “margin call” event where traders sell their NFTs and as a result of which end up tanking the market.
“While such systems are of course basic knowledge for experienced traders, they are new to most NFT traders who can now suddenly afford to buy that shiny profile picture (PFP) they have been dreaming about,” said Carl. “We’re going to have a lot of inexperienced buyers getting into projects they couldn’t afford before or taking loans on their PFPs to buy more.”
While other platforms in the NFT space offer loans, the concern with Blend is that it is a product straight from Blur, one of the leading NFT marketplaces in terms of trading volume, according to data from Dune analytics. Given the market share, the already avid users are likely more inclined to lease NFTs rather than buy tokens at full price.
It can not only hurt the market, but also the native BLUR token. Pseudonymous Twitter user Bamboo, strategic leader at the NFT merchant club Invite Only Lounge, said in a twitter thread that if the NFT market is impacted by lenders on Blend, it will both impact people’s BLUR holdings and negatively impact the larger crypto ecosystem.
“Blur leverages game theory with its tokenomics and unique airdrop distribution mechanisms,” said Bamboo. “But as game theory experts, they should remember that increasing players’ profits at the expense of others is not optimal for Pareto.”
The position of the NFT lender
While Blur is one of the first major NFT marketplaces to roll out its own internal lending platform, it’s certainly not the first to introduce the concept of pledging NFTs.
PirateCode and Cryptobiosis, the pseudonymous co-founders of the peer-to-peer NFT lending platform BendDAO, told CoinDesk that while NFT lending is generally beneficial to the market and can help bolster liquidity, some of Blend’s funding strategies worrying about whether or not the “refinancing process” will actually protect lenders.
One issue they mentioned was the mechanism that allows lenders to exit their positions. To do this, they would start a Dutch auction to find and refinance a new lender.
“The viability of the refinancing process introduced by Blend remains uncertain,” said PirateCode and Cryptobiosos. “In practice, refinancing only becomes relevant when the number of lenders exceeds that of borrowers.”
Another concern regarding Blend is the process of taking out loans to purchase NFTs on the platform.
Jonathan Gabler, co-founder of the peer-to-peer NFT lending platform NFTFi, told CoinDesk that while Blend’s initiative to bring liquidity to the market is innovative, it is also dangerous to incentivize traders to take out loans. close at value (LTV), which is tricky for highly volatile digital assets.
“Unchanged, the current stimulus design is likely to lead to bad outcomes for borrowers, such as mass defaults or liquidations of risky loans, washing NFTs into the hands of point farmers, and as a result could lead to much greater market volatility,” he said. Gabler. “Existing peer-to-peer protocols tend to be more nimble-friendly and lead to healthier lending markets.”
Read more: What is NFT Loans?
