Blur, one of the largest NFT markets, recently made waves by launching Blend, a peer-to-peer NFT lending platform. The platform allows traders to lease their NFTs to collectors who want to purchase blue-chip NFTs with a smaller upfront deposit. However, the impact of the move on the market is still unclear.
How Does Blend Work?
Similar to a digital pawn shop, NFT holders can put up their token and accept loan offers from collectors. The token is then transferred via an escrow smart contract to the renter. According to Blur, Blend lowers prices for popular NFT collections to attract new buyers, thereby increasing traders and transactions and boosting liquidity in the NFT ecosystem.
What Is the Impact of Blend on the Market?
Since Blend began on May 1, some blue-chip NFT collections’ floor prices, such as Bored Ape Yacht Club and Mutant Ape Yacht Club, have temporarily increased. However, novice traders should be cautious of NFT lending services like Blur, as they allow collectors to buy tokens without funding, which poses liquidity risks when collection floors or cryptocurrency values fall.
What Are the Hazards of Blend?
Carl_m101, the founder of NFT collection Sky Scooters, tweeted about Blend’s hazards, including a “margin call” event where traders sell their NFTs and sink the market. He cautioned that inexperienced buyers could fomo into projects they couldn’t afford or take loans on their PFPs to buy more.
What Is the Concern about Refinancing?
PirateCode and Cryptobiosis, the pseudonymous co-founders of peer-to-peer NFT lending platform BendDAO, questioned whether Blend’s “refinancing” process would protect lenders. They argued that lender escape mechanisms were a concern, and refinancing only matters when lenders outnumber borrowers.
Jonathan Gabler, co-founder of peer-to-peer NFT lending platform NFTFi, also expressed concerns about Blend’s financing strategies. He added that incentivizing traders to take out loans at loan-to-value (LTV) is dangerous for highly volatile digital assets and could lead to bad outcomes for borrowers, mass defaults, or liquidations of high-risk loans.