Blend: NFT Lending for Degens
Blur has launched Blend, an NFT lending platform that allows users to borrow against their NFTs, effectively introducing leverage into the ecosystem. With that, volatility and wild price swings are expected.
What is Blend?
Blend is an oracle-less and perpetual peer-to-peer NFT lending platform that allows users to borrow against their NFTs. Borrowers and lenders agree on fixed rates, and the loans are open indefinitely until liquidated at market-determined rates.
Blur also launched a new feature Buy Now, Pay Later (BNPL), allowing users to buy NFTs with borrowed funds and fully repay the loan over time to take full ownership of the NFT.
Currently only 3 NFT collections are supported on Blend, but more will added in the coming days.
Season 2 of the $BLUR airdrop was also announced. The mechanisms are similar to Season 1 but with the inclusion of lending points.
Lending points are farmed by making Loan Offers using $ETH, essentially providing liquidity for NFT holders looking to borrow against their NFTs.
Blend is currently incentivizing borrowers and lenders with zero platform fees which can be turned on after 180 days. Furthermore, they are also allowing users to earn Bidding points and Lending points using the same $ETH in their Blur Pool.
Since Blend went live, the platform has facilitated the highest number of Milady loans, although Azuki has seen the greatest loan amount due to the higher value of the NFT.
Data indicates that 9.5% of Milady loans are under-collateralized as floor prices have dropped, and 32% are within the 90-100% range. This places those particular NFTs at risk of being auctioned off at a higher lending rate or given to the existing lender.
Azuki and Cryptopunk NFT loans are comparatively safer, which suggests that owners value these NFTs more than Milady NFTs. As a whole however, many of these participants are still playing it close to the edge.
At present, the platform shows that there are multiple Loan Offers provided at 0% APY by users seeking to farm the second $BLUR airdrop. While this strategy is the most effective, it also carries the greatest risks.
NFTs are extremely volatile given their lack of fungibility. While it seems harmless to forgo lending yield, lenders may not have factored in the risk of bad debt resulting from receiving collateral valued vastly below the loaned amount should the contract end in liquidation.
Introducing leverage for assets that are non-fungible to degen traders will cause both the borrower and the lender to lose, with the borrower losing the NFT and the lender receiving an NFT that is lower in value than the $ETH that was lent.
This product by Blur once again favours large whales as opposed to small traders, with the only winner being experienced traders with deep liquidity to absorb the negative impacts of leverage trading.
While the promise of an Azuki at 2 $ETH is intoxicating, users are strongly encouraged to do their research to determine if short-term liquidity outweighs the long term risks.