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Tieshun Roquerre, the cofounder of Blur, claimed that holders of non-fungible tokens, also known as NFTs, are constantly becoming NFT-rich while also becoming ETH-poor. The same venture has now come up with a borrowing-lending solution that resolves the issue.
Blend, by Blur, is a product that allows NFT holders to have access to liquidity without any expiration date. Loan amounts on such NFTs see interest accumulate until the borrower does not settle the loan.
Liquidity is one thing the industry has been lacking, which has frequently discouraged the community from acquiring digital assets. NFT holders can, at most, sell their NFTs or use them as collateral for the loan. This still does not provide access to liquidity for NFT holders.
Also, Blend enables lenders to generate yield on their assets, rates for which can be customized depending on how risky it is to lend the asset. For instance, borrowers can set the rate to a lower percentage if the collection is well established. On the other hand, collections with high volatility can be lent at a higher rate to the borrower.
Blend eliminates the need to liquidate the holding under pressure, which frequently results in a substantial loss.
A total of three benefits from Blend can be noted, namely access to liquidity for NFT holders, an opportunity to generate yields with customized rates, and no need to liquidate under pressure. However, there are also some risks that Blend carries with it.
For borrowers, specifically, the risk lies in seeing the interest accrue more than the value of the NFT. This makes the digital asset vulnerable to losses if no timely action is taken to repay the loan. They are left with a time window of 24 hours, after which a loan auction is triggered to increase the interest rate constantly.
Per the reports, the interest rate can jump to as much as 1,000 percent APY. Someone can take over the loan, but if that does not happen and the interest rate keeps increasing, then there is a chance that the market condition has changed. Tieshun Roquerre echoed a similar tone in his statement.
Lenders are at risk, too, with Blend. There is a risk that the borrower simply chooses not to repay their balance. This could escalate to a higher disadvantage when someone else refuses to buy the loan despite the interest rate climbing. The lender will have access to the collateralized NFT following the 30-hour auction window; however, liquidating the same may still not cover the loan amount.
Blend has been created collectively by Blur and Dan Robinson, along with Transmission11 from Paradigm. Blend, the borrowing-lending protocol, is live at Blur Marketplace. The mechanism is subject to Blur DAO governance, with zero platform fees for the first 180 days starting from the time Blend went live.