Original author of this article:Cam Thompson, compiled by Odaily little bear.
This month, Blur, which once stirred up the NFT trading market, once again became a hot spot in the market, this time because it entered the NFT lending field. Its new lending platform, called Blend, allows traders to enhance liquidity by leasing NFTs. However, concerns have been raised about the broad impact Blend could have on the NFT market.
On May 1st, Blur launched Blend, a peer-to-peer NFT lending platform that allows traders to rent out their NFTs to earn extra income, while allowing collectors to own blue-chip NFTs with a small expenditure. The process is automated through escrow smart contracts.
Blend aims to introduce new buyers into the NFT ecosystem by lowering the huge financial threshold for collecting NFTs, Blur said. The increase in traders and transaction volume also means more liquidity in the NFT ecosystem.
According to OpenSea data, Blend may have contributed to the short-term rise in the floor price of certain blue-chip NFTs. In just a few days since Blend launched, the floor price of the popular Bored Ape Yacht Club has risen from 47 ETH (~$93,500) to about 50 ETH (~$99,400). As for its good brother, Mutant Ape Yacht Club, the floor price rose from about 10.5 ETH to 11 ETH.
Although Blend has ostensibly boosted NFT prices, not every trader is suitable for using this mechanism to collect blue-chip NFTs. The danger is that NFT lending platforms (such as Blend) allow lenders to buy NFTs with funds they don’t have, which creates liquidity risk when NFT prices fall or cryptocurrency prices crash.
Founder of NFT project Sky Scooters@Carl_m 101 Analyzed a series of risks to explain the existence of Blend. When the price of NFT rises sharply, there may be another "margin call" event-traders sell their NFT, causing the market to crash.
Carl said: "While a system like this is of course common sense to experienced traders, most NFT traders have never touched an NFT lending system like Blend. Once they can suddenly "buy" the PFP they have always dreamed of , there will likely be an influx of inexperienced buyers into projects they cannot afford, or through their PFP revolving loans, to buy more.”
The above "systemic problems" obviously predate Blend. While other NFT lending platforms exist, the problem with Blend is that it comes directly from Blur, which is currently one of the most heavily traded NFT marketplaces, according to data analyzed by Dune. Considering its market share, it already has a loyal base of users who are more likely to choose to lease NFTs than buy NFTs at full price, which means that Blend has the advantage of having more basic users than other platforms. Development advantage, but also has more users who borrow NFT.
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Viewpoints of other competitors
PirateCode and Cryptobiosis, co-founders of NFT lending platform BendDAO, told CoinDesk that while NFT lending is generally helpful to the market and can help enhance liquidity, some of Blend's funding strategies have raised questions about whether the "refinancing" process ensures borrowers safety concerns. One of the issues in their mechanism is that when a lender backs out of the loan deal, they trigger a Dutch auction to find a new lender and refinance.
“The viability of the refinancing process introduced by Blend remains uncertain,” said PirateCode and Cryptobiosos. "In practice, refinancing only becomes viable when there are more lenders than borrowers."
Another question about Blend is the process of borrowing and buying NFTs on the platform.
Jonathan Gabler, co-founder of NFT lending platform NFTFi, believes that while Blend's move to introduce liquidity to the market is innovative, incentivizing traders to ''Loan to Value Ratio' mechanismTaking out loans is also dangerous, which is especially dangerous for highly volatile digital assets.
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