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Paradigm and Blur Developers Announce Blend, a P2P NFT Lending Protocol – How Does it Work?

On Monday, the NFT marketplace “Blur” unveiled a novel NFT-centered lending platform that distinguishes itself by operating without time limitations and without reliance on external price oracles, which are commonly used by other lending platforms.

The introduction of this innovative lending platform was made via a Twitter announcement and a comprehensive whitepaper authored by Dan Robinson, a lawyer and researcher affiliated with the crypto investment firm Paradigm. Robinson, who plays a pivotal role in the project, highlighted that this platform “supports arbitrary collateral, has no oracles, and has no expirations.”

As outlined in Robinson’s whitepaper, “Blend” deviates from traditional lending protocols in its ability to keep borrowing positions open indefinitely while determining interest rates based on market dynamics. This approach allows for greater flexibility and adaptability in the lending process.

“Blend connects users seeking to borrow against their non-fungible collateral with lenders willing to provide the most competitive rates, utilizing a sophisticated off-chain offer protocol,” as detailed in the project’s whitepaper.

The whitepaper also specifies that Blend loans come with fixed interest rates by default and have no expiration dates. Borrowers are granted the flexibility to repay their loans at any time, while lenders have the option to exit their positions by initiating a Dutch auction process to secure a new lender at an updated rate. In the event that the auction doesn’t succeed, the borrower’s collateral is liquidated, and the lender assumes ownership of the collateral.

Unlocking liquidity of NFTs

Robinson’s introduction aligns with the description provided by the Blur team on Twitter, where they referred to the new platform as a means to unleash the liquidity of NFTs.

In a series of Twitter posts, the team elaborated on the challenges faced by NFT buyers, likening their situation to that of home buyers who often cannot make the full upfront payment, whether it’s for a house or a high-value NFT collection.

The team pointed out that while many individuals may desire to invest in a collection, only a limited number can afford to make the entire purchase in one go. Their proposed solution to this issue is NFT lending, which offers a path for individuals to access and invest in NFT collections without having to pay the entire amount upfront.

In a subsequent launch thread, the team further explained that the protocol currently accepts three prominent NFT collections, namely Punks, Azukis, and Miladys, as eligible collateral. They also hinted at the inclusion of more collections in the near future.

With this new protocol, items from these collections can serve as collateral for borrowing ETH. Alternatively, an investor has the flexibility to purchase an item from one of these collections and make payments later, effectively unlocking liquidity.

The team went on to describe the advantages of this approach, highlighting that borrowers can repay their loans at any time, enabling them to gain full ownership of their NFT. Alternatively, they can choose to list their NFT for sale at any point and retain any profits generated from the sale.

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