Blur’s new protocol gives blue-chip holders access to liquidity without the need to sell, but crypto Twitter has mixed feelings.
NFT marketplace Blur has unveiled a new perpetual lending protocol which gives NFT holders access to liquidity without selling their assets. The Blend protocol (blur + lending) matches users looking to borrow against their NFTs with lenders offering the most competitive rates.
Blur tweeted: “If you have a Punk, you can now borrow up to 42 ETH within seconds. If you want an Azuki, you can now buy one with just 2 ETH up front”.
Blur likens the protocol to home ownership via mortgaging. The platform tweeted: “Every trillion dollar market relies on financialization to scale. NFTs are no different. Instead of paying $1m for a house, buyers put $100k down and pay the rest through their mortgage. Without this mechanism, almost no one would be able to afford homes.”
So what is crypto Twitter saying?
Well, the response has been mixed. Some have welcomed the protocol, with one user stating that it “allows investors that would otherwise be priced out to enter the non-fungible token market”.
Others praised the protocol for increasing liquidity for NFT holders without forcing them to sell.
Others however have expressed a more cautious response to the news.
One Twitter user wrote that the protocol leaves investors “overexposed”, enticing them to invest in something they can’t technically afford. They tweeted:
Along similar lines, other users pointed out that the protocol is more likely to work in favour of crypto whales rather than small investors. They wrote: “Wow?! So now whales who control large percentages of blue chips can now lend eth to small fish and the small fish can buy into said blue chip. THEN said whale can manipulate the fp and cause the small fish the become insolvent and the whale gets eth plus and nft back.”
Web3 lawyer Jesse Hynes went as far as tagging the SEC in a tweet, citing the protocol as “extremely dangerous”. He added: “Seriously tho, people are now getting loans for above floor price. If you want to sell you’ll probably get more by taking a loan on the NFT and never making payments….”
Another common criticism of the protocol is that it’s likely to increase market volatility.
One user wrote: “The last thing this VOLATILE space needed was a lending protocol to lend a volatile asset in a highly volatile market to purchase another expensive volatile asset. I wonder why the Web3 is not maturing.”
Are these concerns substantiated?
Lending comes with risks in any industry, but Blend is quite different from standard DeFi lending protocols.
Blend operates without relying on oracles to determine collateral values or interest rates. While this eliminates potential vulnerabilities and manipulation, it also introduces the challenge of accurately assessing the value of NFTs. Valuing unique and illiquid assets can be subjective, leading to potential disputes or discrepancies in determining loan-to-value ratios.
It also runs the risk of not protecting lenders and borrowers properly. The protocol assumes the existence of sophisticated lenders who can evaluate risks and manage their own capital, but this may exclude less experienced lenders who may be at a disadvantage when engaging in complex on- and off-chain protocols.
In sum, the crypto Twitter sentiment surrounding Blend hangs very much around the phrase “be careful”:
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.