NFT lending platform Blend raises concerns over ecosystem liquidity

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Pro-focused non-fungible tokens (nft) market stigma NFT is making headlines again, this time for entering the lending space. The move has raised questions about its wider market impact.

Blur launched on Monday Mixpeer to peer nft lending Platform that allows merchants to lease their NFTs to collectors looking to buy blue-chip NFTs with small upfront payments. Holders hoping to make extra money can stake their NFTs, receive loan offers, and then transfer their tokens to a tenant for a specified period of time via an escrow smart contract – similar to a digital pawnshop.

According to Blur, Blend aims to help introduce new buyers to its ecosystem by lowering the financial barrier to entry for popular NFT collectibles. As a result, this helps drive liquidity into the greater NFT ecosystem by increasing traders and transaction volume.

According to data from NFT marketplace OpenSea, it’s possible that the blunder may have contributed to a short-term increase in the floor price of some blue-chip NFT collectibles. Since May 1st, when Blend launched, Lowest Price The collection for the popular bored app Yacht Club has increased from 47 ETH (approximately $93,500) to approximately 50 ETH ($99,400). for its Mutant Ape Yacht Club, the floor price increased Around 10.5 ETH ($20,900) to 11 ETH ($21,900).

While it appears that Blend could help propel the NFT markets to the upside, it may not be a product that every amateur trader eager to “monkey” should be on. The danger is that NFT lending platforms like Blur allow collectors to purchase tokens with funds they do not have, creating a liquidity risk when the collection floor or cryptocurrency prices fall.

Blur just launched Blend and I think it’s a huge gamble.

here’s why…

(1/7) pic.twitter.com/ru0Eaydsxm

– Carl (@Carl_m101) May 1, 2023

Twitter user Carl_m101, founder of NFT collection Sky Scooters, shared a thread explaining some of Blend’s risks, where after a big price floor jump, “margin Call, event may follow Where traders sell their NFTs and as a result, liquidate the market.

“While systems like this are certainly basic knowledge for experienced traders, they are new to most NFT traders who can now suddenly buy that shiny profile pic (PFP) They are dreaming,” Karl said. “We will have many inexperienced buyers getting involved in projects they could not afford earlier or taking loans on their PFPs to buy more.”

While other platforms in the NFT space offer lending, the concern with Blend is that it is a product directly from Blur, one of the leading NFT marketplaces in terms of trading volume. According to data from Dune Analytics, Considering its market share, its already keen users may choose to lease NFTs instead of buying the token at full price.

It may not only harm the market, but it may also harm the native stigma token. fake Twitter user bamboo, strategic leadership at the NFT Traders Club invite-only lounge, said in a twitter thread As the NFT market is impacted by the lenders on Blend, it will harm people’s Blend holdings as well as negatively impact the larger crypto ecosystem.

Letter to the Community Driven Market @blur_io

Or how Blur stole $30 million from an NFT whale
and early supporters. pic.twitter.com/PXudqy6XOK

Bamboo (@bamboo__eth) May 2, 2023

“Blur is employing game theory with its token economics and unique airdrop distribution mechanics,” said Bamboo. “But as game theory experts, they must remember – increasing players’ winnings at the expense of others is not Pareto optimum.

NFT Lender’s Approach

While Blur is one of the first major NFT marketplaces to roll out its own in-house lending platform, it is certainly not the first to introduce the concept of pledging NFTs.

PirateCode and Cryptobiosis, the pseudonymous co-founders of peer-to-peer NFT lending platform BendDAO, told CoinDesk that while NFT lending is generally beneficial to the market and can help increase liquidity, Blend has some Financing Strategy raises concerns about whether its “refinancing” process will actually protect lenders.

One issue he called upon was the mechanism by which lenders could exit their positions. To do this, they would trigger a Dutch auction To find a new lender and refinance.

“The viability of the refinancing process initiated by Blend remains uncertain,” PirateCode and Cryptobiosos said. “Practically, refinancing becomes relevant only when the number of lenders exceeds the number of borrowers.”

Another point of concern regarding Blend is the process of taking a loan to buy NFTs on the platform.

Jonathan Gabler, co-founder of peer-to-peer NFT lending platform NFTFI, told CoinDesk that while Blend’s initiative is innovative in helping to bring liquidity to the market, it is also dangerous to encourage traders to take out loans. loan to value (LTV) which is troublesome for highly volatile digital assets.

“Unchanged, the current stimulus design could lead to bad consequences for borrowers such as large-scale defaults or liquidation of high-risk loans, flow of NFTs into the hands of point farmers, and, as a result, could lead to a lot of volatility in the market said Gabler. “Existing peer-to-peer protocols are more borrower-friendly and lead to healthier loan markets.”

Read more: What is NFT lending?

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





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