Blend, Blur’s new NFT lending protocol: all you need to know | by XP. NETWORK | XP. NETWORK

Blend, Blur’s new NFT lending protocol: all you need to know

Blur, the no.1 NFT marketplace by volume, has rolled out a lending protocol called Blend. You can borrow ETH and use the Buy Now, Pay Later option using NFTs as collateral — or earn passive income lending money. The launch of Blend has created a lot of hype — but in fact, NFT lending is already a big market with players like Paraspace and BendDao.

Meet Blur’s NFT lending platform, Blend

If you still think that OpenSea is the biggest NFT marketplace, think again. In the past few months, the newcomer Blur blew it out of the water: the 30-day volume on Blur is $760 million, while OpenSea has just $260 million. At the same time, Blur has a fraction of OpenSea’s active users (70k vs. 250k) but a much higher average sale price ($1,900 vs. $128).

All these differences stem from the fact that Blur is aimed at professional NFT traders. It supports only Ethereum, loads very fast, and doesn’t even display individual NFT images — because pros aren’t interested in pictures. They like Blur because they can sweep the floors of many collections across different marketplaces and because there are a lot of analytic tools. Plus, Blur doesn’t charge fees, and even royalties are optional.

Now let’s turn to Blend. The idea is that NFT traders should be able to finance their purchases with loans, just like people take out mortgages to buy houses. Indeed, few can afford to pay upfront for a blue-chip NFT, and this is holding back the growth of the NFT market (according to Blur, at least).

Blend is a built-in solution to the problem: deposit an NFT you already hold, get a loan, buy what you need on Blur, and repay when you can: there is no set borrowing period.

It’s built in partnership with Paradigm, a crypto VC fund that invested in Blur, Magic Eden, and OpenSea, as well as Maker, Compound, Uniswap, Cosmos, and many other major blockchain projects. In particular, two of Paradigm’s research engineers helped create the technology behind Blend: @transmissions11 and Dan Robinson, one of the minds of Uniswap V3.

What makes Blend special

  1. Fixed interest rates. On lending platforms like Aave, borrowing rates fluctuate all the time, so you never know how much you’ll have to pay for the loan in the end. Fixed rates are available, but they are much higher. On Blur, things are far more predictable.
  2. Loans don’t expire. Blend is perpetual: you can keep the borrowed money as long as you need; you’ll just have to pay more in interest at the end. If the lender wants to get their money back, they can’t force you to repay — instead, they can trigger an auction to repay them instead and take their place. Only if no new lender can be found will the loan be liquidated, and the borrower will lose the collateral.It’s important for lenders to have a way to exit. Some NFT lending protocols don’t have any liquidations at all; that protects borrowers, but as a lender, you risk finding yourself stuck with NFT collateral that keeps losing value.
  3. No fees — for now. In the first 6 months, Blend won’t charge any platform fees. Later, they can be turned on by a DAO vote. Off-chain P2P matching. Blend doesn’t pool funds together. Instead, borrowers post their offers of collateral and potential lenders compete to offer the best interest rate.
  4. No oracles. In NFT lending, oracles are used to determine the current value of NFT collateral based on marketplace prices. This is complicated and can trigger liquidations when a collection’s floor price suddenly drops. Oracles can also be vulnerable to manipulations. Blend doesn’t need oracles because it’s a P2P platform: lenders and borrowers agree on the terms individually.
  5. DAO governance. BLUR holders will be able to vote to change some parameters, such as fees and the auction formula. However, they won’t be asked to decide on matters like the minimum loan-to-value ratio.

How did the Blend launch go?

Blend launched on May 1, 2023, with support for three collections: Azuki, CryptoPunks, and Myladys. There is no separate Blend platform for now — rather, there is a feature called Buy Now Pay Later (BNPL), which is integrated into Blur.

By clicking on the “Or XXX ETH” next to the “Buy 1 item” button, you can access the BNPL intro interface and then a slider that lets you choose how much you want to pay upfront. You’ll see the interest rate change as you drag the slider.

Users can also earn Blur points for making loan offers to borrowers. The point system is Blur’s key incentive system, with 300 million BLUR set to be distributed in the coming months. Every collection supported by Blend is allocated a set number of Lending points.

Very quickly, Blur reported the first BNPL purchase, and the demand for BNPL definitely seems to be there. However, the community’s reaction has been mixed.

Some praised Blur’s move as “massive for the space”, while others pointed out that you shouldn’t borrow money to speculate in NFTs in the first place. The NFT market is very risky, to begin with, and Blend users do risk losing their collateral as a result of a liquidation. Blur makes it look like BNPL an easy and safe way to get the NFTs you want right here, right now, by paying little, but a lot of people get into debt by recurring to payday loans, for example, which use similar positioning.

Blend is definitely a very valuable innovation in the space, though users should do their own research before using it. However, Blend isn’t the first NFT lending service. Let’s look at its competitors.

Major NFT lending platforms (other than Blend)

Paraspace has over $60 million in issued loans on Ethereum, but it also supports ERC-20 tokens as collateral and not just NFTs. In case of a liquidation, ERC-20 collateral is liquidated first via a Dutch auction. Over 4,700 NFTs have been locked so far, including 800+ Bored Apes.

The borrowing limit depends on the rarity of your NFT’s traits, but the average loan-to-value ratio for BAYC and CryptoPunks, is 60%, going down to 30–35% for less valued collections like the Bored Ape Kennel Club and Otherdeed virtual land. Paraspace has its own Buy Now, Pay Later Feature, just like Blend. Ethereum only.

BendDao supports 10 blue-chip NFT collections on Ethereum, including CryptoPunks, BAYC, Azuki, Doodles, and MoonBirds. Over 33,000 NFTs have been staked as collateral so far, with 12,000 ETH in issued loans. There is a collateral listing feature, which allows you to sell the collateral that’s being used for a loan.

All users can also earn rewards in BEND tokens. For even more passive income, you can stake your Apes and ApeCoin to get compounded APE rewards.

You can borrow USDC, DAI, and WETH — all on Ethereum only. The platform is P2P: borrowers list their NFTs and loan requirements while lenders make offers. The NFT collateral is kept in escrow for the duration of the loan, so the system isn’t trustless, but at least there are no automatic liquidations. The lender can, however, foreclose a loan if it’s not repaid and get hold of the collateral. The total loan volume on NFTfi has already reached $400 million, according to the official website.

The protocol supports 15 major Ethereum collections (Punks, Apes, Azuki, Fidenzas, etc.) with a maximum loan-to-value ratio of 70%, depending on rarity. Around 500 NFTs are currently staked, and borrowers pay 2% APR on average. JPEG’d is not P2P: rather, NFTs are locked in vaults, and liquidity is provided out of the dedicated pool for each vault.

Borrowing consists of minting a synthetic token (pETH or pUSD) that can be swapped for another crypto or staked in a liquidity pool on Curve to earn LP rewards. Thus, JPEG’d be aimed more at those who look for additional DeFi gains than at users who want to buy NFTs with borrowed funds.

What’s next for the market?

The total TVL of the NFT lending dApps listed on DeFiLlama is close to $450 million. As the most comprehensive multichain NFT bridge out there, we at XP.NETWORK is closely watching this space since it’s clearly a major utility use case for NFTs — and utility is what we’re most interested in. For now, all the major NFT lending dApps run on Ethereum, so perhaps the next step would be using bridged cross-chain NFTs as collateral on Ethereum.

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