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Blur lending agreement Blend: NFTFi agreement matrix key chess
Summarized by AI
Original title: "Blur Lending Agreement Blend - NFTFi Protocol Matrix Key Chess"
Original source: IOSG Ventures
Introduction
Although the overall market is cold, it seems that Blur's leap forward in NFT Fi has not slowed down. According to its Twitter feed on May 2, Blur officially crossed from the direct transaction layer of liquidity aggregation to the lending market, successively launching P2P perpetual lending Blend, buy now and pay later BNPL, mining loan points, etc. The function has aroused widespread heated discussions in the community and set off aftershocks in the upstream and downstream of the NFT Fi industry chain.
What is the difference between Blend and other NFT loan agreement mechanisms? Does this mean that similar to the development trajectory of DeFi, the protocol matrixing process of NFT Fi has begun ahead of schedule? How should we predict the overall track of NFT Fi? We give some simple reflections and comments below.
The "Three Mountains" facing the NFT Fi industry
The credit mechanism needs to be improved : In DeFi, the most common model is over-collateralized loans, while in the NFT Fi scenario, we can introduce more diversified loan models, such as unsecured loans such as BNPL. However, since KYC is not mandatory for participants in NFT lending and leasing, the risk control of the entire financial system is highly dependent on the capabilities of a single NFT Fi project. In the future, we will inevitably need a more mature and reliable on-chain credit system to solve this problem.
Pricing mechanism to be improved: As we have mentioned in previous research, NFT has endogenous factors such as subjectivity and illiquidity , it is difficult to be simply priced based on asset fundamentals or past transaction records like homogeneous assets. Refer to traditional artwork evaluation methods: similar comparison, cost calculation, average price and double sale, remove the cost calculation method, the remaining similar comparison, average price and double sale correspond to AI/ML evaluation in NFT pricing, TWAP and These three types of transaction pricing methods. However, none of these three types of evaluation methods can achieve perfect price discovery at present.
Supporting service system to be improved: Basic supporting services including banking, trust and insurance are necessary for any kind of financial market. However, a theoretically complete financial flow system does not yet exist in the current NFT Fi industry. As the most basic module of the banking system, credit has reason to become the key function that is the first to be paid attention to and developed in the entire financial system in any scenario, which is why the improvement of the NFT lending agreement plays a key role in opening up the upstream and downstream liquidity of NFT Fi .
NFT lending motivation:
NFT collectors are often less willing to sell their high Net Worth Assets (Blue Chip NFT Collectibles). However, holding NFT for a long time also means that a large amount of capital will be locked in illiquid assets. That's why we need mortgages.
> In a bull market, holders may find better short-term speculative opportunities. So they have an incentive to use non-financial assets as collateral to unlock liquidity/cash out some money.
> In a bear market, holders tend to use over-collateralization to hold more cash to prevent a shortage crisis, while ensuring that they do not lose their NFTs (explaining why overall NFT loans have a lower default rate).
Blend's mechanism innovation
Blend's mechanism is directly operated by Paradigm, so The co-authors of the published article, Dan Robinson, are senior contributors to leading DeFi protocols such as Comound and Uniswap. At the same time, their non-permission and composability concepts that have been carried forward in DeFi protocols have also consistently continued into the design concept of Blend.
Blend is essentially matching NFT holders and fund holders to complete the effect of mortgage NFT lending funds, which is different from emerging peer-to-peer pools such as BendDAO Instead, it adopts a peer-to-peer (P2P) lending model like NFT.Fi and other established protocols, and has made further paradigm adjustments on the basis of integrating the advantages of traditional P2P lending. In the figure below, we also briefly analyze the differences between P2P and P2Pool mechanisms:
The innovation of Blend can be summarized as the following four aspects:
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Oracleless:
The general point-to-point model has this feature, namely Interest rates and utilization of funds, among other things, are determined by the terms the lender is willing to offer. A failed Dutch auction would trigger a liquidation.
>Compared with other P2P lending of the same kind, removing the oracle machine is not a new narrative. Provide price reference when setting terms (e.g. NFT.Fi will provide several data such as floor price, past transaction price, Upshot and other ML pricing)
Perpetual:
The setting of the maturity date requires the borrower to manually roll back or close the position, which makes On the one hand, the borrower may face the risk of NFT being confiscated, and on the other hand, it needs to spend extra gas fee. Therefore, Blend directly removes the maturity setting, and only needs to conduct on-chain transactions when interest rates change (new lenders propose new terms to take over) or one of the parties wants to withdraw from the agreement. > Compared with traditional P2P, the sustainable setting is very interesting and is likely to win the favor of more lenders. In a fixed-term reception, if the value of the NFT is already lower than the repayment amount, the borrower chooses not to repay the loan, and the lender cannot recover the principal even if the NFT is liquidated.
In addition, the perpetuity mechanism also provides other potential lenders with the opportunity to take over the loan, so that the borrower has the opportunity to exchange the interest rate space for the extension of the loan term. > Although the sustainable mechanism seems to be beneficial to both borrowers and lenders, as Mr. Mindao pointed out, this is actually a protocol design that is "friendly to lenders but not friendly to borrowers". The borrower is more in a relatively passive state in the mechanism. When the lender initiates a "refinancing" auction, the withdrawal of the original lender, the intervention of the new lender, and the adjustment of the new interest rate are not controlled by the borrower. This also means that the "right to choose" and "autonomy" of lending are actually skewed towards the lender, and the wool comes from the sheep. Under the triple fence of repaying money, repaying debts, and accepting new terms, borrowers are likely to suffer losses due to malicious frequent "refinancing".
Liquidatable before maturity:
>This design is very friendly to the lender and establishes a guarantee for the lender to lend money. When the price of NFT drops, lenders are allowed to start the liquidation auction process in time, and supplement the lender's risk premium through auctions with rising interest rates. We believe that this is necessary to promote the liquidity of NFT, and it is very important to stimulate the vitality of funds.
Effective:
The lender's funds can be used in multiple ways, not only participating in Blur's bidding (DEX liquidity provision), but also being a lender to provide liquidity.
> It realizes the capital aggregation of transaction + lending, and combines some advantages of the pool model, such as "perpetual" borrowing for borrowers money. At the same time, for the lender, there is an auction competition market on the capital side and can be shared with the bidding pool. At the same time, the agreement defaults to "optimistic" rollover, and there is no mandatory maturity to lend. (Quoted from Mindao, the founder of dForge)
NFT loan consideration dimension
Traction (attractiveness):
Attractiveness of the platform to lenders and borrowers, whether there are enough borrowers and loans People touch and use the platform, user retention and conversion rates. Since blue chip holders are fixed, traction in the stock market means winners take all.
Risk Management:
The risk control capability of the platform, whether there is a feasible design to ensure the safety of the funds and collateral of the lender and the borrower, and how to punish default.
Effectiveness:
The aggregation efficiency of the platform, whether there is a flexible bargaining and terms negotiation mechanism, and whether it can help lenders and borrowers reach a deal in the shortest time.
Conclusion
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Although it is still in the early stage, we believe that the NFTFi protocol may eventually move towards the protocol matrix like DeFi, integrating the three models of transaction + lending + stable currency in the future. We have also been discussing the endgame of NFTFi internally. Is it a one stop service liquidity agreement (a project includes lending, trading and other functions at the same time), or is it similar to the current state of DeFi? Different protocols have different divisions of labor (such as Uniswap Responsible for transaction functions, Aave for lending functions, etc.).
The biggest problem with NFTFi at present is the lack of liquidity. Blur’s bidding, NFTX’s fragmented AMM, BendDAO’s loan liquidation, and some derivatives agreements are all in the Increase liquidity in various forms to optimize pricing. Blur, as the largest head player today, has accumulated a huge number of NFT holders. Blend is bound to become a key step in its protocol matrix. This is why we see that Blend focuses on stimulating the vitality of funds, and also It is to attract funds. The game between the funder and the NFT holder is the key to the final presentation of the product, and we will continue to pay attention.
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