What is Blend? Blend is a lending protocol for NFTs deployed on the Blur platform, allowing users to use NFTs as collateral to borrow a corresponding amount of ETH.
Since its launch, Blend has quickly attracted a large number of participants, surpassing various other NFT lending platforms to become the top platform in terms of borrowing volume and users. So, what makes this protocol special?
What is Blend?
Overview of Blend
Blend is a lending protocol for NFTs deployed on the Blur platform. Blend applies a P2P lending model, enabling users to borrow based on their NFT collateral, with any lender willing to offer the most competitive price for the loan.
The name “Blend” is a combination of “Blur Lending,” and it is referred to as Perpetual Lending because Blend provides indefinite loans, allowing loan positions to be maintained indefinitely until liquidation with interest determined by the market.
Additionally, Blend does not use Oracles to fetch price data to determine the user’s position in the loan or to determine interest rates. The team explains that each NFT has unique characteristics, making it challenging to measure and apply uniformly to all NFTs in the same collection. Blend avoids dependencies in the core protocol. Interest rates and loan-to-value ratios are determined by any terms the lender is willing to offer, with liquidation triggered by failure in a Dutch auction (this will be explained further in the following section).
Blend is developed by a Blur Core Contributor in collaboration with Paradigm. In addition to implementing the lending model on Blur, the team has also developed a Buy Now Pay Later (BNPL) product, allowing users to pre-purchase Blue Chip NFTs with a small amount of money.
Introduction to Blur
Blur is an NFT Marketplace Aggregator platform designed for NFT traders and collectors. Blur aggregates data from various NFT exchanges such as OpenSea, LookRare, X2Y2, enabling users to search for suitable NFTs on a single platform.
Operating Model
The operating model of Blend follows these steps:
- Step 1: Lenders place an off-chain order to lend a specific amount of ETH with a specific interest rate for any NFT in a specified collection. The interest rate offered by the lender remains stable throughout the lending process.
- Step 2: NFT owners looking to borrow can browse available offer orders and choose a deal that suits their preferred terms. They then accept the lender’s offer by depositing the NFT on the platform to receive a corresponding amount of ETH.
- Step 3: Borrowers can reclaim their loans at any time. Borrowers have 6 hours to request capital replenishment through a Dutch auction. If a new lender is not found after this period, the borrower has 24 hours to repay the loan.
Dutch Auction for Capital Replenishment: At the expiration time, if the borrower hasn’t repaid, a Dutch auction starts at a 0% interest rate, increasing steadily. When the auction reaches an interest rate that a new lender finds interesting, they can accept it by submitting their offer on-chain. The new lender pays the entire repayment amount to the old lender at the auction’s completion and takes over the loan.
If the interest rate reaches 1000% without a new lender accepting the loan, the NFT collateral is liquidated and transferred to the lender.
Evaluation of Blend’s Lending Model
Advantages of Blend’s Lending Model
In Blend, there are several advantages observed:
- Double Points for Participants: Whether participating as a lender or a borrower, users receive double points, which Blur later uses for airdropping BLUR tokens to users. This partly explains why Blend is the number one NFT lending protocol in both volume and users at the moment.
- Replenishment Method Flexibility: The application of a replenishment method allows borrowers to maintain loans indefinitely without fear of liquidation. Lenders can also exit the loan at any time they wish. This creates flexibility for both borrowers and lenders.
Disadvantages of Blend’s Lending Model
Blend’s lending model has a few drawbacks:
- 24-Hour Repayment Window: The 24-hour repayment window makes it challenging for borrowers, and the success of the replenishment process. New lenders, if accepting significantly higher interest rates than the initial rates, also puts borrowers in a difficult position to repay the total borrowed amount plus interest.
- Collateral Transfer: If the replenishment process is unsuccessful, the collateral NFT will be transferred to the lender. This isn’t particularly beneficial for lenders if the amount invested in lending is greater than the value the collateral NFT brings.
Conclusion
Blend has been very successful in attracting a large user base since its launch, with over 3000 loans and over 75% market share in the NFT lending market. While there are still some drawbacks in the lending model, based on what Blur has achieved, I am confident these drawbacks will be addressed in the near future. This concludes all the information I wanted to share in this article, hoping everyone has gained interesting insights into Blend.