TL:DR
- Blur, the dominant NFT exchange, has launched a new lending protocol called Blend, designed for collateralized loans backed by digital collectibles.
- The lending protocol relies on a Dutch auction structure, which allows a continuous rolling lending mechanism, offering additional liquidity for lenders.
- Though Blend faces abundant competition, it differentiates itself by offering a flexible, permissionless floating-rate lending protocol that supports arbitrary collateral with no oracle dependencies.
Blur Blend
As the NFT market continues to grow, exchanges are exploring new opportunities to expand their offerings. One area of focus for upstart NFT exchange, Blur, is NFT lending. The company has recently rolled out its new protocol, Blend, designed for this purpose. Blend is an ambitious peer-to-peer lending model that relies on a Dutch auction structure to enable a bidding process around blockchain-based lines of credit.
While Blur’s Blend has been met with a number of open questions from industry participants, including institutional NFT traders, the exchange’s core NFT trading volumes have been holding down the top spot in terms of volumes. The big question is whether Blend can gain enough market share to make the ambitious venture worthwhile.
According to a number of Web3 specialists, one of the most significant features of Blend is the continuous, rolling lending mechanism that allows for rollovers of loans. This means that the same lender and borrower don’t need to be in a contract, introducing additional lending liquidity. However, this model is not without its own risks, including the risk of an NFT losing all of its value.
Retail and institutional interest in NFTs has waned since floor prices and volumes plunged in the fourth quarter of 2022. More recently, floor prices of blue chip collections and their associated volumes that feed into overall NFT market capitalizations have stabilized, but traders remain cautious. Some in the industry suggest that lending protocols like Blend could help boost the market by enabling participants to use NFTs they own as collateral to secure crypto loans. Additionally, NFT buyers using the Blend platform can obtain a loan to purchase fresh Web3 collectables.
Tons of Competition
Competition in this space is abundant, and some of Blur’s key competitors are expected to be NFTfi, PWNDAO, BendDAO, and ParaSpace. However, Blend positions itself as a viable alternative to existing DeFi products and protocols designed to make markets on loans collateralized by digital collectibles, and to originate loans for digital collectible purchases. Its white paper highlights that it’s a flexible and permissionless floating-rate lending protocol that can support arbitrary collateral with no oracle dependencies and allows whatever interest rates and loan-to-value ratios the market will bear.
Despite this, there are still concerns about the overall maturity of the digital asset space, and whether there will be sufficient liquidity on the lender side. Many NFT holders are looking for liquidity as their assets have declined in value, so the demand side for these loans should be reasonable, but there is skepticism about lenders wanting to step up to the plate at reasonable interest rates.
It remains to be seen whether Blend will gain enough traction to be successful, but Blur is expected to subsidize usage with incentives, which could create an arms race of shelling out crypto assets among NFT marketplace competitors. However, investors are hopeful that Blur’s lending platform could set a base for collateral provision for the growing tokenized asset market, attracting some previously illiquid assets.
As the NFT market continues to mature, lending protocols like Blend could help to provide additional liquidity and collateral opportunities for participants. However, the overall liquidity of the market and interest from lenders remain concerns, and there is still much to be seen in terms of whether Blend can gain enough market share to be a successful venture. As the NFT market evolves, exchanges like Blur will continue to explore new opportunities for growth and expansion.
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