BLEND launches allow even more risk for NFT traders | NFT CULTURE | NFT News | Web3 culture

Blur has announced that BLEND a Buy Now Pay Later (BNPL) is revolutionizing the way we buy products and services by allowing consumers to buy goods with borrowed funds and pay them back over time. In the NFT world, BNPL is also making waves, enabling collectors and investors to buy digital art with borrowed funds. This blog post will discuss how BNPL works in the context of NFTs and provide examples of potential benefits and pitfalls.

See more

1/ Introducing Blend: Peer-to-Peer Perpetual Lending Protocol for NFTs.

Built in collaboration with @danrobinson and @verføringer11 on @paradigmBlend enables 10x higher return opportunities than current DeFi protocols and unlocks greater liquidity for NFTs.

This is how you do it 👇 pic.twitter.com/uOFC6i3LSq

— Blur (@blur_io) 1 May 2023

Understanding BNPL for NFT: When you use BNPL to buy an NFT, you are borrowing funds that will be repaid over time, either by using BNPL or by borrowing directly using an NFT you already own. Your borrowed balance accrues interest in accordance with the loan terms.

For example, suppose you borrow 10 ETH at a daily interest rate of 0.05%. After one month, your loan balance will have grown from 10 ETH to 10.15 ETH.

Repayment and ownership of NFTs: Over time, you can choose to repay your loan to gain full ownership of the NFT. Alternatively, you can sell the NFT and keep any remaining profit after the borrowed balance is repaid during the sale.

For example, if you sell your NFT for 12 ETH one month after borrowing 10 ETH at a 0.05% daily interest rate, you will keep 1.85 ETH, and 10.15 ETH will be used to repay the borrowed balance your.

Loan repayment and refinancing: In some cases, the lender may require you to repay or refinance your loan. This usually happens when the floor price of your NFT falls. If the floor price falls too close to the amount you borrowed, the lender can call on your loan.

When this happens, an automated process starts to find a new lender for your loan with similar terms to your existing loan. If a new lender is not found within 6 hours, you must repay or refinance the loan within 24 hours (make sure you have email alerts enabled to receive alerts).

Repayment from your portfolio: You can repay your loan directly from your portfolio page. Currently, you must repay the full amount of your borrowed balance. However, partial repayment will soon be available, allowing you to extend the loan with new terms.

For example, if you borrowed 10 ETH and the floor price drops to 10.5 ETH, the lender can call your loan. In response, you can pay back 1 ETH and extend your loan with a new, lower borrowed balance of 9 ETH.

Automatic loan refinancing: If you don’t want to repay your loan, you can refinance it with a new lender. This process takes place automatically based on available loan offers, visible on the Loans tab on the collection page. If loan offers are available, no action is required from you to refinance the loan.

For example, if you borrowed 10 ETH and the floor price drops to 10.5 ETH, the lender can call your loan. If another lender offers a loan of 10 ETH at an interest rate of 50%, your loan will automatically be refinanced with this new offer.

BNPL for NFTs is an innovative way to finance the purchase of digital art. However, it is critical to understand the potential risks and benefits associated with borrowing funds to purchase NFTs. Be sure to thoroughly evaluate your financial situation and loan terms before availing BNPL for NFTs.

Objective risk at BLEND and BNPL

1. Financial instability: BNPL services may cause users to take on more debt than they can handle. This can result in financial difficulties, loan defaults and a negative perception of the NFT market, discouraging new entrants.
2. Increased Market Volatility: The use of borrowed funds to purchase NFTs can amplify price swings, as buyers with leveraged positions may be forced to sell their NFTs when the bottom price falls close to their borrowed amount. This can lead to cascading effects in the market, potentially causing rapid price drops.
3. Inherent risk when refinancing loans: Automatic refinancing of loans with new lenders can expose borrowers to unfavorable loan terms, such as significantly higher interest rates. This could lead to an increase in the number of non-performing loans, create negative sentiment towards NFTs and damage the market’s reputation.
4. Excessive reliance on floor price: The text relies heavily on the concept of a floor price, which can be volatile and subject to manipulation. This may create additional uncertainty for both borrowers and lenders, as the floor price may not accurately reflect the true value of the NFTs.
5. Limited repayment options: Currently, borrowers have to repay the full amount of their borrowed balance, which can lead to difficulties in managing their financial obligations. This inflexibility may deter potential users from adopting NFTs.
6. Lack of transparency and regulation: The BNPL service described in the text appears to lack clear regulation and oversight, which could lead to predatory lending practices or market manipulation. This can hinder the trust of potential users and slow down NFT adoption.
7. Potential Illegality: The BNPL service may operate in a legal gray area or even be considered illegal in certain jurisdictions, depending on the specific lending practices and regulatory environment. Operating an unregulated or illegal lending service can expose both borrowers and lenders to legal consequences, further damage the reputation of the NFT market and discourage new entrants.

The BNPL service for NFTs presented several risks that could negatively impact NFT adoption and growth. It can contribute to financial instability, increase market volatility, expose borrowers to unfavorable loan terms, rely too heavily on floor rates, offer limited repayment options, lack transparency and regulation, and potentially even be illegal.