Blur Introduces Peer-to-Peer Perpetual Lending Protocol with NFT Collateral

Quick take:

• Blur has launched a new lending protocol called Blend.
• The protocol enables borrowers to use NFTs as collateral forever, allowing them to service their debt whenever they choose.
• Lenders can auction off the debt to another lender or liquidate the borrower if they need to.

Blur has launched Blend, a new lending protocol that allows borrowers to use non-fungible tokens (NFTs) as collateral indefinitely.

The peer-to-peer perpetual lending protocol does not impose term limits on loans, allowing borrowers to service their debt when they choose.

However, should the lender choose to redeem their position, they can either auction the loan to another lender via the platform or liquidate the borrower by taking possession of the collateral.

According to a blog post published by Blur’s parent organization Paradigm VC, Blend uses an off-chain protocol to match users looking to borrow against their non-fungible collateral with the lender willing to offer the most competitive rate.

By default, the loans are set to have fixed interest rates with no expiry dates, with protocol fees controlled by Blur.

With lenders allowed to exit positions through Dutch auctions, this allows Blend to implement infinite rollovers for as much as there is another lender on the platform willing to lend the given amount against the collateral.

Transactions in the chain only take effect in the event that there is a change in the interest rate level, or if one party decides to exit the position.

Blend’s peer-to-peer lending platform differs from other lending protocols in a number of ways. According to the description provided by Paradigm, the protocol matches each loan individually, rather than pooling lenders’ funds together.

This allows it to support long-tail security permissionlessly, allowing lenders to participate in complex on- and off-chain protocols, evaluate risks and use their own capital.

After the lender settles with a given amount of ETH they are willing to lend to NFT borrowers, the borrower browses the platform to find the available off-chain offers and select a compatible offer that matches the terms they are interested in.

“They then create a chain transaction that meets the lender’s offer, puts the NFT in a lien vault, and transfers the principal from the lender to themselves,” Paradigm wrote in the blog post describing the process.

Traditionally, if a maturity period for an NFT-backed loan reaches and the borrower is unable to repay, they lose the NFT regardless of whether it is worth more than the amount borrowed.

Blend allows borrowers to roll over the loan from an interest rate of 0%, which increases over time. When the interest rate reaches a level that a new lender is willing to lend, the new lender can accept by placing an offer on the chain. The new lender then pays the full amount to the old lender.

In the event that the interest rate reaches 1000% without attracting a new lender, the protocol renders the position insolvent or otherwise non-viable and liquidates the borrower. The lender can then send the transaction that takes control of the security.

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