Blur, a popular pro-focused NFT marketplace, has launched Blend, a peer-to-peer lending platform for NFTs, raising concerns about the impact it could have on the broader NFT market. The platform enables traders to lease their NFTs to collectors to buy blue-chip NFTs with a smaller upfront payment, driving liquidity into the greater NFT ecosystem by increasing the number of traders and transactions. Since its launch, Blend may have contributed to a short-term rise in the floor prices of some blue-chip NFT collections. However, there are concerns about the liquidity risks that NFT lending platforms such as Blend may pose to the market, particularly in cases where collectors purchase tokens with funds they do not have.

The lending process on Blend works like a digital pawn shop. Holders who want to earn extra money can put up their NFT, receive loan offers, and then transfer their token via an escrow smart contract to the renter for a specified period of time. According to Blur, Blend aims to help introduce new buyers to its ecosystem by lowering the fiscal barriers to entry for popular NFT collections. The danger is that NFT lending platforms such as Blur allow collectors to purchase tokens with funds they do not have, creating liquidity risks down the line when collection floors or cryptocurrency prices crumble.

Twitter user Carl_m101, founder of NFT collection Sky Scooters, shared a thread explaining some of the risks of Blend. For example, after a large price floor jump, a “margin call” event might follow where traders sell off their NFTs and, as a result, end up tanking the market. While systems like these are basic knowledge to experienced traders, they are new to most NFT traders who can now afford to buy NFTs that were previously out of their reach. This could lead to many inexperienced buyers aping into projects they couldn’t afford before or taking loans on their NFTs to buy more.

While other platforms in the NFT space offer lending, Blend’s status as a product directly from Blur, one of the leading NFT marketplaces in terms of trading volume, according to data from Dune analytics, is a cause for concern. Considering its market share, its already-eager users may be more likely to opt into leasing NFTs rather than purchasing tokens at their full price. The concern is that this could hurt the market and also negatively impact the native BLUR token.

While Blur is one of the first major NFT marketplaces to roll out its own in-house lending platform, it certainly isn’t the first to introduce the concept of pawning NFTs. PirateCode and Cryptobiosis, the pseudonymous co-founders of peer-to-peer NFT lending platform BendDAO, believe that while NFT lending is generally beneficial for the market and can help bolster liquidity, some of Blend’s financing strategies raise concerns over whether or not its “refinancing” process will actually keep lenders safe. One issue they called out was the mechanism by which lenders can exit their positions. To do so, they would trigger a Dutch auction to find a new lender and refinance. “The viability of the refinancing process introduced by Blend remains uncertain,” said PirateCode and Cryptobiosos. “In practice, refinancing becomes relevant only when the number of lenders exceeds that of borrowers.”

As for the process of taking out loans to purchase NFTs on the platform, Jonathan Gabler, co-founder of peer-to-peer NFT lending platform Niftyx, said that although the interest rates on NFT loans are significantly higher than those on traditional loans, people are still taking them out because of the chance to make a profit. Gabler also acknowledged that there are