Wednesday, February 21, 2024

How Blend is Revolutionizing Borrowing Against NFTs

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Blur, an NFT marketplace, has launched Blend, a new lending protocol that enables NFT collectors to borrow against their digital assets using ETH as collateral. Developed in collaboration with VC firm Paradigm, Blend offers significantly higher returns than other DeFi protocols and increases NFT liquidity. The platform aims to allow traders to maximize NFT liquidity by allowing buyers to put up collateral for their token purchases, thereby enabling new buyers to enter the ecosystem who were previously priced out of expensive collections like Bored Ape Yacht Club and CryptoPunk NFTs. The off-chain protocol matches borrowers and lenders while interest and loan payments are managed through on-chain Ethereum transactions.

Blend, which stands for Blur Lending, is a flexible and permissionless floating-rate lending protocol that can support arbitrary collateral with no oracle dependencies. It allows for whatever interest rates and loan-to-value ratios the market will bear. The lending protocol was created in collaboration with Dan Robinson, head of research at venture capital firm Paradigm and investor in decentralized exchange Uniswap v3, and Transmissions, a pseudonymous research associate who has previously contributed to building the marketplace protocol Seaport. Paradigm is the lead investor in Blur.

According to the Blend white paper, the protocol has no fixed repayment terms, although loans typically accrue interest until repaid or the person is repaid. Lenders begin refinancing options. Moreover, Blend offers perpetual loans, which provide flexibility to borrowers and can result in long-term income for lenders. The lending protocol has no fees for traders or lenders, pushing the Blur brand further into the world of decentralized finance (DeFi).

With the launch of Blend, Blur seeks to unlock the potential of NFTs and enable financialization at scale. As Blur stated in a tweet, “Every trillion dollar market relies on financialization to scale. Many may want to buy into a collection, but very few can afford to pay it all at once. The solution is NFT lending.” The launch of Blend comes near the end of Season 2, the airdrop period of $300 million worth of its native BLUR token, and demonstrates Blur’s further foray into the world of DeFi.

How does Blend work?

Credits: NFT now

Blend is a platform that enables borrowers to leverage their non-fungible tokens (NFTs) as collateral to obtain loans from lenders offering the most competitive rates through a sophisticated off-chain offer protocol. The platform supports two new product offerings from Blur, the first of which allows users to access the liquidity of Ethereum by using their NFTs as collateral, while the second allows users to purchase expensive blue-chip NFTs with a small down payment and pay the rest later. At present, Blend can only be used on three NFT collections, but the platform plans to add more soon.

Paradigm’s design document suggests that if a lender leaves, a Dutch auction will be initiated, with the interest rate gradually increasing from 0% to 1000% over time. Any new lender in the middle can come out at any time, and if no one accepts the loan at 1000%, the NFT collateral will be given to the existing lender through side liquidation. However, the borrower must repay or borrow new money to pay off the old debt, which is not difficult to speculate on since there are only two variables – the loan amount and the interest rate – and Paradigm only considers the interest variable in its design. In reality, both approaches aim to convert to new terms that are most advantageous to the borrower, but one requires the borrower to operate, while the other does not.

It’s worth noting that Blend has yet to give $Blur much permission. While $Blur has admin rights to set various parameters and turn on the fee switch after six months, many details still need to be determined. Blend is a promising platform that allows users to leverage their NFTs for loans while providing lenders with the most competitive rates through an advanced off-chain offer protocol. However, it’s important to keep an eye on how the platform evolves and how it balances the needs of borrowers and lenders in the long run.

What makes it different from others?

Blend is a lending protocol that stands out from other platforms due to its unique features. The protocol does not rely on external oracles and has no fixed expiration date, allowing borrowers to keep their positions open indefinitely, as long as both parties agree on the terms of the contract. Additionally, Blend does not charge any fees to either the borrower or the lender.

Blend utilizes an off-chain incentive protocol to match borrowers with lenders who offer the most competitive rates against their NFT collateral. The platform automatically rolls over loan positions when the lender agrees to lend against the collateral, without any need for online transactions, unless there is an exit or a change in interest rates.

The loan perpetuity protocol allows borrowers and lenders to extend the loan expiration date for a predetermined period. If the lender wants to terminate the loan against the borrower’s wishes, a Dutch auction for refinancing is conducted, starting with a 0% refinance rate that gradually increases over time.

Blend allows borrowers to repay their loans at any time, and they can automatically take out a new loan against their collateral to adjust the borrowing amount or get a better interest rate. The new principal can be used to pay off the old loan, making it easy for borrowers to manage their debt. It is important to note that Blend is still evolving, and developers are working to add more NFT collections to the platform.

The launch of Blend marks a significant step forward for the NFT ecosystem and the financialization of digital assets. By providing a peer-to-peer lending protocol that enables NFT collectors to borrow against their digital assets, Blend aims to increase liquidity, unlock new opportunities for buyers, and provide long-term income for lenders. Its flexible and permissionless protocol, along with its collaboration with Paradigm, positions Blur as a key player in the world of DeFi and NFTs.

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