Blur, the non-fungible token marketplace that has dominated trading volume over the past few months, debuted a new product today called “Blend,” a peer-to-peer lending protocol that the company says will add liquidity to the often-illiquid NFT market.
According to a whitepaper Blur published, Blend will feature a few benefits over current lending protocols in the NFT space. These include the lack of a need for oracles, or individuals who oversee lending transactions; no expiries, meaning that the relationship between the borrower and lender can continue ad infinitum as long as both parties are happy; increased liquidity for lenders; and peer-to-peer transactions, which improve decentralization.
In a hypothetical deal between two parties using Blend, the borrower will match with a lender and offer their non-fungible token as collateral for ETH. The loans do not have a set expiration time. Rather, the buyer can repay at any time, with interest accumulating on the loan until they do. If the lender wants out of the agreement, they can trigger an auction, which will theoretically find another lender who wants to work with the borrower.
Blend deals will have zero fees for borrowers and lenders, similar to trading on the Blur marketplace. This may change after 180 days if holders of Blur’s native token decide to change that rule. To build Blend, Blur partnered with Paradigm, a Web3 investment firm that backs disruptive crypto companies with loans ranging from $1-100 million.
Are there risks with Blur Lending?
Like any lending protocol, there are some risks associated with borrowing and lending.
Due to the lenders’ ability to terminate a deal at any moment, borrowers may need to be ready to pay back a loan quickly. When the 24-hour window of the lender-trigger auction expires, the interest rate on the loan rises rapidly to attract another lender. This means that a borrower may be trapped into a loan with a higher interest rate than initially planned.
Lenders may also find themselves in a sticky situation if the collateral on the loan — the NFT — drops in value in relation to the original loan terms. In that situation, if the borrower does not repay the loan and no other lender decides to pick up the loan, the lender may find themselves with an NFT that does not cover the balance of the money lent. In this case, the lender will take a loss even if they liquidate the NFT.
These situations indicate that borrowing and lending are risky endeavors, even with the protective mechanisms Blur has put in place for both parties.
The Flip Side to Blur Lending: Buy-Now Pay-Later
Just a couple of hours after the announcement of its peer-to-peer lending protocol, Blur revealed its second product: a Buy-Now, Pay-Later program where NFT enthusiasts can purchase a non-fungible token with a down payment and a series of payments that extend into the future.
The Blur BNPL program will have three collections to start: CryptoPunks, Azuki, and Milady Maker. If an individual purchases an NFT through the program, they can only “unlock” the NFT when they pay the full amount owed. The company wrote in its Twitter thread that it will add another collection soon.
As part of the promotion of its lending and BNPL programs, Blur is increasing points rewards for the three aforementioned collections — 2x for lending points and 2x for bid points. Rarity Sniper will report back on any further developments in the story.