NFT marketplace Blur has entered the NFT lending space with its newly launched platform Blend. The peer-to-peer NFT lending platform allows traders to lease out their NFTs to collectors looking to buy blue-chip NFTs with a smaller upfront payment. The move is aimed at introducing new buyers to the ecosystem by lowering fiscal barriers to entry for popular NFT collections, driving liquidity into the greater NFT ecosystem by increasing the amount of traders and transactions.
While it appears that Blend may have contributed to a short-term rise in the floor prices of some blue-chip NFT collections, NFT lending platforms such as Blur may create liquidity risks down the line when collection floors or cryptocurrency prices crumble. The danger is that collectors may purchase tokens with funds they don’t have, leading to a “margin call” event where traders sell off their NFTs and end up tanking the market.
While other platforms in the NFT space offer lending, the concern with Blend is that it’s a product directly from Blur, one of the leading NFT marketplaces in terms of trading volume. Considering its market share, its already-eager users may be more likely to opt into leasing NFTs rather than purchasing tokens at their full price.
However, some experts in the NFT space are raising concerns about Blend’s financing strategies, particularly its “refinancing” process. The viability of the refinancing process remains uncertain and refinancing becomes relevant only when the number of lenders exceeds that of borrowers.
Jonathan Gabler, co-founder of peer-to-peer NFT lending platform NFTFi, said that while Blend’s initiative to help introduce liquidity into the market is innovative, it’s also dangerous to incentivize traders to take out loans at loan-to-value (LTV) which is troublesome for highly volatile digital assets.
As the NFT market becomes impacted by lenders on Blend, it may hurt people’s BLUR holdings as well as negatively impact the greater crypto ecosystem. Liquidity is crucial in the crypto and NFT sector as it helps maintain the market’s stability and reduces the risk of volatility. As more lending platforms enter the market, it’s important to ensure that they have sufficient safeguards to prevent liquidity risks and ensure the long-term sustainability of the NFT market.