It appears that evidently the brand new market, Blur, has carried out it once more. Current information means that its lending platform, Blend, is poised to make an equally spectacular impression. Nevertheless, with nice innovation comes nice threat, particularly on the subject of borrowing in opposition to NFTs.
Since its launch a mere ten days in the past, Blend has shortly carved out its house within the extremely aggressive crypto lending market. A staggering 51,656 ETH—equal to $95 million—has already been borrowed in opposition to digital collectibles. This fast development is mirrored in over 3,000 particular person loans opened on the platform.
Blend NFT Lending Protocol
Because it presently stands, Blend helps loans backed by 4 NFT collections: Miladys, Azukis, DeGods, and wrapped variations of CryptoPunks. Every of those collections has its distinctive enchantment, attracting a various vary of debtors and lenders to the platform.
Blur’s spectacular ascendancy within the NFT market was initially sparked by its native token airdrop in Q1 2023. This strategic transfer drove important traction to the NFT market and aggregator, contributing to a surge in Ethereum‘s NFT trading volumes.
Blend, also known as Blur Lending, is building on this momentum. Since its inception, it has outperformed competitors like NFTfi, Arcade, and BendDAO, amassing a total NFT loan volume of an impressive $67 million in just one week. These loans alone account for a remarkable 75% of the total volume. To date, 3,045 loans have been accepted and refinanced, involving 922 unique lenders.
Understanding the Risks of NFT-Backed Loans
The practice of using NFTs as collateral has been gaining traction since 2021, spurred by the emergence of new platforms and the skyrocketing value of digital assets. However, this trend does not come without risks.
Liquidity risk is a major concern in this space. Much like using other assets to back loans, NFT-backed loans involve depositing an NFT as collateral. Borrowers set loan terms and receive ETH from the lender. If the borrower fails to repay the loan, the NFT is liquidated, and the lender claims ownership. However, this scenario can pose significant liquidity risks if collectors buy tokens without sufficient funds, potentially leading to a market crash if collection floors suddenly tank.
To mitigate the risk of liquidation, borrowers may face margin calls, which occur when the lender requests additional collateral to compensate for the decreased value of the asset. This scenario played out in 2022 when BAYC NFT prices plummeted by 80% in six weeks. Many traders, who had over-leveraged themselves by using their Apes as collateral for loans on BendDAO, faced margin calls.
The Future of NFT-Backed Loans
As we navigate the exciting yet unpredictable waters of NFT-backed loans, it’s clear that platforms like Blend are altering the best way we work together with digital belongings. Nevertheless, this innovation should be tempered with warning. Because the NFT market continues to evolve, understanding the dangers concerned and adopting accountable lending and borrowing practices will probably be key to making sure the sustainability and success of this burgeoning sector.
