Blur introduces Blend

[DearMary]

Over the past month, the NFT market has been distracted by the hot BRC 20 Ordinal NFT and memecoin, and many old NFT players are now involved in chasing the hot BRC NFT market and on-chain dogs. At the same time, the original NFT market is gradually cold, the only event worthy of attention is that Blur, the new star NFT aggregation marketplace, went live on May 2 with Blend, a peer-to-peer perpetual lending agreement using NFT as collateral, officially entering the NFT lending circuit.
Many people are optimistic about Blur's strong entry into the NFT lending circuit, saying that it will help increase NFT liquidity. However, R3PO believes that this liquidity and capital dynamism is currently driven primarily by point incentives, and it is debatable whether it will be sustainable in the future.
What is Blend? How does it differ from existing lending agreements?
The mechanics of Blend are directly driven by Paradigm, and the co-authors of the published white paper, Dan Robinson and others, are veteran contributors to headline DeFi protocols such as Comound and Uniswap. At the same time, Blend's design philosophy continues the philosophy of non-permissiveness and composability that has flourished in the DeFi protocol.
Blend uses P2P Lending, which is essentially a peer-to-peer matching of NFT holders and fund holders to complete collateralized NFT lending of funds. Unlike emerging peer-to-peer pool models such as BendDAO and ParaSpace, Blend only acts as a third-party platform for aggregating P2P lending. Moreover, Blend adopts the same peer-to-peer lending model as NFTfi and X2Y2, which gives both lenders and borrowers more freedom to customize their agreements and does not involve automatic liquidation, and the platform is relatively safe for funds because it only undertakes the aggregation function.
On this basis, Blend has made further adjustments. Blend does not rely on a predictive machine and has no maturity limit, allowing borrowing positions to remain open indefinitely until liquidation, thus allowing borrowers to be more flexible in their use, while interest rates are determined by the market. In addition, Blend supports BNPL-Buy Now Pay Later, which allows users to use BNPL to prepay a portion of their funds to purchase NFT and repay the loan at any time to gain full ownership of the NFT.
Currently Blend supports Punks, Azukis and Miladys NFT series, and subsequently added support for DeGod.
According to the latest data from Dune Analytics on May 10, Blend, the NFT lending marketplace, has facilitated over 4.7 million ETH loans in the week since Blur launched it.
According to DefiLlama data, Blend has come on strong with a total TVL of $11.8 M in its first week online, ranking fifth among all lending agreements. The top two lending agreements on this list, BendDao and ParaSpace, both use a different point-to-pool (Peer-to-Pool) operating mechanism than Blend, compared to the lending agreement between users, the point-to-pool approach is more efficient, but also has certain risks, last August, the NFT market is cold, blue-chip NFT prices continue to fall, NFT-style The subprime mortgage crisis caused a series of liquidation of lending pools on BendDao. The recent ParaSpace drama has also caused a panic exodus from its NFT pool, and the liquidity crisis and crisis of trust in the point-to-pool has been a potential black swan risk.
Compared to the liquidity crisis count and crisis of trust issues criticized in the point-to-pool model, Blend's liquidation mechanism uses the lender's consensus to launch before starting liquidation, which can prevent the floor price from falling rapidly within a certain limit of the unexpected events caused by serial liquidation. At the same time the borrower also has the right to re-auction for financing and can do matching with different lenders.
The liquidity Blur once brought may have been a false boom
Blur's launch may have brought a "false boom" to the NFT market, which has seen signs of recovery in the cryptocurrency market since the beginning of 2023, but the NFT market in general has not seen an upturn. According to Dune data, after the launch of the NFT aggregation platform Blur late last year, its airdrop reward mechanism quickly captured the NFT market share and boosted the trading volume of the stagnant NFT market, but after the airdrop reward was released on February 14, the overall NFT market trading volume started to plummet and the price of BLUR token dropped nearly 70% from its peak in just three months. The BLUR token price has also dropped nearly 70% from its peak in just three months.
Not only that, but the floor price of most NFTs has fallen repeatedly. The floor price of NFT market leader Bored Ape Yacht Club (BAYC) series has been dropping from a high of 80 ETH in February, and once fell below 44 ETH last week, hitting a 6-month low again. During this period, the well-known OG in the NFT field, Brother Maggi, lost so much money in this game deliberately created by Blur that he even announced his withdrawal from the NFT field, and made the following comments on the Blur mechanism: "Blur's mechanism condones false liquidity and ignores the rights and interests of real liquidity providers, who are subject to disproportionate risk from time to time. The real liquidity providers will gradually leave and eventually the actual liquidity will go to zero, all of which is killing Blur and the entire NFT ecosystem." It is thus clear that the liquidity brought by Blur may be nothing more than a false boom.
Blend platform: creating liquidity or serving the big players?
In traditional financial markets, the need to borrow money is ubiquitous, such as home loans, car loans, bank loans, etc. In the NFT market, NFT holders also have the need to further improve the efficiency of capital utilization by lending NFT in exchange for cash liquidity to maximize capital utilization. In addition, users choose to mortgage NFTs rather than sell them, which also helps to alleviate the problem of oversupply. So the NFT market for lending has some relevance.
However, whether Blend is the optimal model for NFT lending remains to be evaluated. Since Blur's Phase 1 airdrop gave birth to many wealthy myths, the bid reward mechanism of Phase 2 has attracted a group of "miners" who are not inherently interested in collecting NFTs and have treated the entire NFT market as a "mining ground". These large investors and scientists continue to optimize their machine automation scripts and capital scale for the purpose of harvesting others, and have created significant risk for the market as a whole. Blur's reward mechanism and extreme pursuit of liquidity has gradually revealed many problems.
Now that Blur has entered the NFT lending circuit strongly, many people are optimistic because it will help increase the liquidity of NFT. But the so-called liquidity is really so important? After the second phase of the rules, many junk NFT projects "returned" with the collusion of large investors and founders, and became tools to swipe points, so what is the point of creating liquidity? When the Blur Rewards program is over, will the liquidity created by the in-rolling of points still exist in this market?
Will the launch of Blend also gradually become a tool for large investors to harvest retail investors? Perhaps Blur's intention is to combine the existing Bid pool in the strategic deployment of an integrated lending, interest, installment NFT liquidity market to improve capital efficiency and accelerate the process of financialization of NFT. But in reality, it may only add a new game play for the "Blur points miners".
The NFTfi track is still in its early stages, and many believe that the future NFTfi protocol may move towards a protocol matrix like DeFi, which integrates three modes of trading, lending, and stablecoin. While the launch of Blur's Blend lending platform did stimulate capital dynamics, the source motivation for this dynamism is currently mainly points incentives, and whether it will be sustainable in the future is open to question.