Blur Launches NFT Lending Protocol

Blur, the leading NFT marketplace by trading volume, is diving into NFT lending with its new Blend protocol that went live today.

Traders now have a Buy Now, Pay Later (BNPL) option, which allows them to buy NFTs without bearing the full cost upfront. Borrowers can either acquire the token in full once they have the funds to repay the loan, or look to sell the asset if it appreciates, pocketing the difference.

Blur’s other product deals with peer-to-peer lending — users can borrow against their NFTs with specific amounts and interest rates offered by individual lenders.

The lending features initially support three NFT collections – CryptoPunks, Azuki, and Milady – but the Blend protocol allows for any asset to be collateralized. The Milady floor price is up 30% after a wave of leveraged buying.

The Blur team is releasing Blend under the same business license that Uniswap, the leading decentralized exchange in terms of trading volume, used for its influential V3 protocol.

Blur has disrupted the NFT space since it launched last October. The NFT marketplace and aggregator has been engaged in an extended battle against OpenSea to be the go-to platform for trading. After OpenSea launched a more directly competitive “pro version” last month, Blur is again stepping into new territory.

This time, Blur will be up against a new set of competitors in the NFT lending space — projects like NFTfi, PWNDAO, BendDAO, and ParaSpace all offer forms of collateralized NFT lending.

NFT influencer Cirrus thinks Blend will lead to a “leverage-fueled run in NFTs,” while another user pointed out that unwary traders may not fully understand what they are getting into.

The release of two new products built on a new protocol hasn’t shielded Blur’s token from a down day in crypto markets — BLUR has dropped nearly 9% in the past 24 hours, while BTC is down over 4% and ETH nearly 3%.

BLUR Price. Source: Coingecko

Refinancing Auctions

With Blend, lenders can trigger a refinancing auction at any time. They would typically do so if an NFT’s price falls, increasing the risk of the loan becoming undercollateralized, or if they simply need the money back.

Refinancing auctions start at a low rate, slowly increasing until a new lender is found — in the case of a BNPL loan, the borrower will have 24 hours to either repay or refinance their loan if a new lender isn’t found within six hours.

Refinancing Auction Mechanism

P2P Loans

Loans on Blur have no fixed maturity date — borrowers can close out the loans at any time, while lenders can call for a refinancing auction at any time, resulting in either another lender stepping in, or liquidation of the collateral.

Will Sheehan, the founder of Parsec Finance, a trading interface for DeFi, told The Defiant that the new Blend protocol differs a bit from the designs of projects like BendDAO and Paraspace, which have traditionally had an edge in the NFT lending space.

“Both Bend and Paraspace are utilizing the peer-to-pool models,” he said. “Historically, these have been the most successful on-chain models for lending and trading.” He cited Compound, a protocol which pools lenders’ fungible assets together for borrowers to use, as an example of the pooled model in the broader DeFi space.

“Peer-to-pool has always beaten peer-to-peer in DeFi thus far,” he said.

Pacman, the co-founder of Blur, pointed out to The Defiant that Blend allows users to borrow much higher amounts against their NFTs than the peer-to-pool model. He added that having a perpetual loan by default is a better user experience for borrowers.

Permissionless Collateral

Sheehan also thinks Blend’s design has some advantages — the pooled models of BendDAO and Paraswap necessitate controlling which NFTs serve as adequate collateral, potentially leading to a hole in the market between would-be borrowers and lenders. “[The] flipside is that [Blend] is permissionless, so it can work immediately for any collection.”

Dan Robinson, head of research at venture firm Paradigm, who contributed to Blend’s development, highlighted that the protocol doesn’t rely on any oracles. As oracles provide data which isn’t native to the blockchain, they introduce the risks of trusting a third party, which crypto proponents generally try to avoid.

While the peer-to-peer model may not have become the dominant one in NFTs so far, Robinson does have a noteworthy track record in DeFi. The researcher was one of the primary contributors to Uniswap V3, hailed as a key development in DeFi.

Paradigm led Blur’s $11M seed round in 2022 and is also an investor in Uniswap.