Blend: Unlock The Value of Your NFTs | Pacman, Blur

Transcript

[Music] welcome everybody to another great segment here we got a repeat guest uh Mr Pac-Man founder of blur uh which it's been less than 24 hours and we're recording on Tuesday May 2nd um when they launched blend so Pac-Man great to have you um on the show again um why don't you tell us a little bit about blend and um let me get started from there driving me on again and uh and one short sentence blend is a peer-to-peer Perpetual nft lending protocol okay we're gonna have to unpack that for

normal listeners yeah I think maybe talking about what blend enables on blur because we integrated it into the blur Marketplace is probably the most useful context so basically with this new lending protocol that we collaborated with uh you know Dan Robinson and Transmissions 11 primarily at Paradigm with uh with this new protocol we launched two new products on blur yesterday one was uh borrowing right you can borrow against your nfts on blur that's a fairly standard feature to launch with the landing protocol and the next one was buy now pay later where basically using blend to provide liquidity you can actually buy an nft with a small portion

of the capital up front and then pay the remainder later so for example let's say there's an attitude that costs like 10 each you could provide one eth of your own collateral and then borrow 98 to make the purchase which is a huge unlock because now people can buy you know very expensive nfts with much less Capital up front and so those are the two features that that enables and then you know with with that context in mind maybe then I can talk about like what exactly a peer-to-peer perpetual nft and info I think yeah why don't we go there awesome yeah so uh you know the first aspect is you appeared here so that's pretty

straightforward in blend all loans are peer-to-peer there's no you know people who've come from D5 are probably familiar with more peer-to-pool protocols like Ave or compound you know where people just dump assets into the pool and then the pool itself handles the uh like the Loan offers per se right you can like borrow at like fix ltvs like 60 LTV or whatever against your Eve basically the protocol in that case is handling the risk um or you know everyone accepts the same risk parameters is probably another way of thinking about it whereas in a peer-to-peer model you basically have uh each lender Define their own risk parameters so maybe you know let's say there's a 10th

collection one lender wants to lend five e at one interest rate like 50 LTV at a certain interest rate another lender can offer you know 80 LTB most likely a higher interest rate because now they're taking on more risk so that's what I mean by peer-to-peer and when I said Perpetual so this is more similar to how people who are familiar with D5 like compound and of it will be familiar with with uh lending which is you know when you take a loan on on Ave that position is Perpetual until you get liquidated and and blend your position is Perpetual until the position is liquidated or repaid as well

The Twist is that normally this is only done in a peer-to pool fashion for peer-to-peer protocols especially in nfts historically the protocols would have a fixed duration so it wasn't a Perpetual loan you couldn't just like wait you know forever to pay back your loan you would actually have to set like a duration like you know 14 days 30 days one day Etc it was typically on average like 30 days and you would have to basically pay back their loan at the 30-day mark or within the 30-day period uh or if you forgot you would uh you would lose your ft so

blend is kind of a combination of both has some of the pure to pool Dynamics but then it also has the peer-to-peer Dynamics in that instead of the pool choosing the risk parameters it allows lenders to choose the full rant risk perimeters that they're comfortable with so let's walk through an example say you have a crypto Punk and the floor is I don't know 80th so walk us through kind of the flow if if I if you have a punk and you want to you know use blind how does it work yeah so first basically the lenders have to start making offers on punks since punks are you know like that like OGD chip collection it's probably one of the most you know safest collections to land against at least like in terms of what

the market would would consider uh and so maybe what you'd see is a lender can make a you know a 6ce offer I think actually punks are let me just check right now I think Punk's like the floor right now is is probably something along the lines of like succeed so maybe maybe it's uh sexy eat someone makes like a 50 eat loan offer uh and then if you own a punk you can basically borrow 50 East against that punk and now let's say it was like a 50 eat loan offer at like a 20 apy that means that once you start borrowing that 58 your interest role crew at a rate of you know 20 per year so you know after a

year if you held that position for a year your total debt that you would owe would increase from 50 to 60. and in this case um you know you need to obviously you have someone else on the other side willing to supply um yeah so so if you could talk a little bit about that dynamic as well yeah totally so the interesting thing about you know nft Finance is prior to blur and since launching uh blend blur became the largest nft lending protocol by volume uh and also by user share within 24 hours but basically prior to blend launch the typical apy that you

could earn in the nft finance space was around like 20 to 30 percent which is and that's on E which is much higher than the yield that you normally get in D5 right I think the median uh yield for like liquid saving or like D5 protocols is typically around like four to six percent API unless you do something like Leverage thing yep so the the yield is much higher um and this is you know kind of more so due it is not necessarily inherently due to like the nft as an asset but it's probably more so due to uh the space you know who the borrowers are the risk tolerances of the borrowers and also uh the lack of market efficiency uh in the space but basically the natural yield

for lenders is already quite High uh and so lenders would provide these loans because they can you know based on their risk tolerances they can earn a nice yield on their eth that's uh much higher than they can get uh and traditional defy yeah and by that like let's unpack that a little right in the case of if you're if you're borrowing some eth um you know it basically in the event of a liquidation or automatic refinancing which my understanding is can be triggered by either the lender or the borrower then you need to be you need to believe that there's ample liquidity in there to either liquidate the nft that you get as

you know that you basically get if the borrower defaults right the lender is going to have to you know take possession of that nft and probably want to liquidate that to get back because eth right um we've seen and correct me here if I'm wrong but we've seen obviously the floor of these nfts even the larger collections that we're seeing here in in blur you know you're talking about punks my late uh milady's um you know azuki's maybe Apes down the road these are fairly liquid markets but still the floor has been fairly volatile some people out there say Hey listen what you know there's sort of this financial the financialization of nfts has created sort of these wild swings in

the floor prices of these nfts even though you've seen an increase in liquidity so maybe walk us through kind of this example where there is a refinancing there's a default in the like what happens there yeah absolutely I think and any another thing to know about blend is in addition to being creative peer perpetual protocol uh you know and unspoken aspect of it is that it's actually Oracle lists so most D5 lending protocols rely on an oracle uh and you know almost every exploit that happens for a D5 Landing protocol is typically some sort of like Oracle

exploit um you know someone pumps up the price of some illiquid asset and then they use that to uh basically like drain the liquidity pool of the lending protocol the interesting thing about blend is that you know due to the peer-to-peer nature it doesn't rely on oracles at all and instead the lenders themselves can trigger a liquidation uh basically it's not actually like a liquidation it's it's actually more of a refinancing auction the lenders themselves can trigger a refinancing option at any time now you might think oh like at any time isn't that like really risky for the borrower but in practice what this means is that the auction since it takes 30 hours so the entire

duration of the auction is 30 hours what that option does is it basically attempts to find another lender at a market interest rate when the current lender doesn't want to hold on to the loan anymore right so this is uh you know they basically have this like loan position they're earning some sort of yield on it and they they want their liquidity back yeah I was just going to say compared to like peer-to-pool on a peer-to-peer one of the big things is you know I would think it silencers and fractures um liquidity in a sense because it's not just a pull with standard LTV standard rates you're going to have these different nuanced offers so I'm curious one does who are these lenders and how do you incentivize that market because

when you're talking about this liquidation and auction uh I would think the risk to the borrower is that no other lender steps in during that auction so you need to be basically you're not manipulating an oracle here but you need to make sure that it's not like manipulation going on with the lenders that could step in great question so a key Assumption of the protocol is that there's a liquid enough lending Market here that when an auction happens that the auction can find another lender at the market rate right so for example you know even with punks even with all the volatility right and and this is through like Luna collapsing FTX crashing like all of our liquidity

providers you know like exiting the system um you know the big sources of institutional Liberty against the system like even with all of that volatility and and even like in this like macro Market the prices of punks have typically held around like 50 each uh you know 40 50 I think the minimum is probably around like 40 or something like that but you know 50th is like a pretty stable point and so let's say I take a 50 LCB loan right if I take a loan for 25 each if if I was a lender and there was no other lender so they just consider like the most extreme example because I think that's probably the most useful to understand the system if I was the only lender and then I'd trigger an auction and then no one refinances it in the 30 hour period so then at the end of the

refinancing if if no other lender steps in and no the borrower doesn't repay then the loan defaults and the lender keeps the nft if I as a lender get that nft for 25 eat I just got a steal because I can go and sell that you can go and sell that into a blur bid right now uh for for over 50 so you know you just made 25b uh for free after a 30 hour delay so in that sort of Market environment if if the market is inefficient then yeah lenders can make like a profit like that but we know that each will chase yield right liquidity will chase yield and if that Dynamic is happening then it shouldn't happen for very long because anyone with

25b will see oh wow like this person's about to make 100 apy 125 to eat alone I would rather step in and make a lower maybe I can make 50 apy a 50 return but I'd rather step in and make that return than just like let someone make free money like that so uh well in that case the apy is way greater than 100 right because that just happened in like almost instantaneously right you're right it's actually way way so so so there is this range in this dodge auction from zero to a thousand apy walk us through kind of the intuition around that level and setting those parameters yeah so the auction when it gets uh goes into the refinancing auction basically it'll

go okay this is a loan for 25 each um does anyone want to take it starts at zero percent interest rate and then at the end of the 30 hours if you choose a thousand percent interest rate and so basically this means that you know at the beginning maybe no one's willing to lend at zero percent apy that would make sense um but by the end of it right if you're if you're able to earn you know a thousand percent apy on your that's like a pretty good deal especially on on punks where you know the floor is held pretty much around 50 each uh even through like pretty crazy Financial collapses and you're risking 25 even LTB so like those are pretty good risk parameters um so basically it attempts to find the market rate for

um for the loan it basically goes to the market and tries to find someone to step in at the market rate it's kind of similar to how a lot of uh like liquidation auctions will work like you know maybe in like maker Dao or um you know in compound I I think in Abe I think it works on something similarly where it's like when the liquidation actually occurs an option is initiated to try to find another lender to step in and and they should step in as long as there's money to be made yeah in this example on the on the borrower side you know they could you know say that they you know borrowed I don't know 25 either so they need to either in an extreme standard the the choices that they have

is to you know repay or lose this nft um right they could you know the the basically what I'm trying to assess is the nft is held in you know in this collateral I mean you're basically holding this in a smart contract right um what I'm trying to say is the you can have like a flash alone of sorts so that the borrower like can borrow some e like liquidate that nft do some weird kind of oh yeah yeah great so in terms of for the borrower and also you know I think I think it probably is useful to stay on the lending topic for a bit because yeah I kind of build up the intuition for the protocol from the

ground up um you know basically what we just discussed is okay if the market is efficient then another lender should come in the only reason why another lender wouldn't come in is if the market is inefficient so it's like okay like how do you make this an efficient market you know one of the nice things is that blur as the largest Marketplace by volume on ethereum uh you know has a lot of attention so anything that we release is is going to get attention on it um the other nice thing is that in addition to just like the natural yield that you get in like the Natural Market forces blur uh toaster and subsidizes that attention with the lending points so with the integration note blend into the blur Marketplace we also redirected the listing points which

you know for those unfamiliar the the point system that we have it's it's towards uh basically credit towards season two which is our second airdrop uh where 300 million plus blur will be distributed uh in season two so basically we are utilizing the lending incentives to effectively ensure that we have an efficient market yeah I think one one interesting thing about that right now is like when you look at the Dune dashboard it looks like there's some loans at zero percent interest and I would assume that's more of a short-term thing that's part of these incentives um and like with that though I think the average apy on these different um nft sets are around 100 I'm just curious like where do you think those apis will end up and like why is it so high at the

moment yeah definitely um so I still need to dig into some of the data I think some of the Dune dashboards are still being worked on so you need to confirm like the accuracy of it uh the high level metrics in terms of like the total loan volume so in the past 24 hours around 9 000 each worth of loan volume uh has been uh has been done which I think is like 15x the previously uh largest like nft lending protocol um but in terms of like that apis I needed I need to double check that uh in terms of you know where does the zero percent apy come from uh of course you know that only works because the interest rates the lower interest rates are being subsidized by blur incentives

uh and I think a good intuition for this is if you actually study the web 2 by now pay later market so like after pay or like Arnon actually uh a lot of times in your purchases you you can actually make a purchase with zero percent apy so if you like buy like an iPhone and you're like okay I want to go on a payment plan you know over 24 months they actually will let you do that payment plan uh with a zero percent interest rate the reason why that's possible is because the buy now pay later uh functionality is so useful for the merchant that the merchants will actually subsidize that zero percent interest rate so so in web 2 you actually already have this zero percent interest phenomenon it's subsidized by the merchant in this case in web 3 when

we integrated by now pay later into blur you can kind of think of it as the blur protocol incentives are subsidizing that zero percent interested in phenomenon just like it happens in web 2 where the merchant is subsidizing it yeah I think that's really cool I was actually listening to acquired yesterday on Peloton I was talking I think it's karma that uh did buy now pay later for Peloton and when they went public it showed that 25 of their revenue was from Peloton on the buy now pay later so it was absolutely huge for them just because the LTD for the Peloton customers so I um yeah no that's really interesting about the zero percent interest rates right now I'm curious just to like who do you think are the main borrowers here and I know it's a Perpetual loan but at least how I think about at a high level it's

like you really have 30 hours where it's fixed because that's what you know the rate's going to be before it could go into auction so do you think this tends to be at least right now like more of a for flippers that might you know buy an nft and flip it within 24 hours and where do you think that will change from where it is today on who those borrowers are yeah totally I think for the longer durations uh we'll we'll have to see exactly how the market dynamics play out but in terms of how the the auction mechanism works so when a lender triggers the auction uh it'll actually attempt to basically match the loan with an existing within a with another loan offer on the order book so for example if if I created a 25 week loan uh a 10

interest rate and there's another loan offer on the book for 25b at 10 interest rate that won't if I go if I'm the lender and I trigger the option it doesn't actually go into auction it'll just automatically refinance a loan with that offer on the order book so depending on how uh like the the offers on the order book when when the lender trigger is refinancing it might actually not even go into auction the only reason why I would go into auction is that if there are no uh Loan offers uh at the same LTV uh or at at least that LTV and at at that interest rate um the reason why there wouldn't be another loan offer at that interest rate

is uh maybe the market marketing conditions change right so like maybe you know I create a loan offer at 25 each when the floor was 55b but now the floor actually like fell in like 30 hours uh you know like you know since the loan was open maybe if that was like 50 and so now the 25 each loan is is no longer the same risk parameters so Market interest rate should probably change this is a very similar dynamic to if you take a a borrower position on an exchange your interest rate on that position actually changes hourly so it's actually even more aggressive than um than what blend enables but on an exchange when you have a borrower position the interest rate changes

hourly and then you can get liquidated instantly uh this enables The Exchange to offer you know much more aggressive uh loan parameters than than uh you otherwise would be able to because they can you know liquidate you instantly on blend the interest rate updates you know basically at most every uh like every 24 every 24 30 hours so it kind of it still has this like Dynamic interest rate model and limitation period takes like 30 hours so it kind of has like a similar Dynamics to how borrower positions amop editions happen on exchanges it's just a little bit more drawn out because of the fact that you know these assets are nfts

they're not fungible tokens and it's a much less liquid Market compared to the fundual Token market and so we can't really code the same parameters as exchanges where they do an hourly updated interest rate and instantly conditions this reminds me a little bit of uni B3 in the sense that you're you know as a liquidity provider you're able to kind of determine the range by which you're comfortable that supplying said liquidity sounds great however I think what we've realized is there's only a small subset of people that are sophisticated enough to actually manage these positions right um and so I want to get into V3 because I think it's relevant you mentioned the Paradigm team that was instrumental kind

of in in architecting Bland so we'd love to perhaps just start with the story and then transition into you know your thoughts around you know how sophisticated the market is to actually deal with you know nfts um as opposed to just regular tokens from V3 yeah right I think that's a really great point and and actually as we were talking I was I was thinking the same thing right because the dynamic that we saw with unisaw you know going from uniswap B2 to B3 is V2 is that full model everyone takes the same risk parameters right they just dump their assets into a pool uh and then that that works to an extent but V3 was a huge unlock because it allowed uh even though

it's a it's like a semi-pulled model it's like somewhat peer-to-peer it's also kind of peer-to-pool uh basically allows the liquidity providers to have the full range of risk parameters uh and that makes it more complicated but then it also allows much more expressivity from a protocol perspective uh and then of course you know stop B3 became the dominant model uh for provisioning liquidity uh for fungible tokens and I think the the reason for why that is is if you study every financialized market and history the progression is it always starts with uh you know it'll start out simple and on and relatively less sophisticated right maybe it's more retail driven maybe it's just like whales that

um you know are more passive and over time as the space grows the liquidity becomes more experienced professionalized um as the space grows and scales you end up getting you know institutional liquidity providers and you no longer have these like individuals provisioning liquidity so like on ESOP E3 the majority of the volume and liquidity is actually provisioned uh by market makers like winter mute Etc I think wintermute does like 30 of unisol b3's volume uh or something crazy like that uh and then you know like the next five market makers probably do the writing uh 80 um so basically every Financial Market over time professionalizes the same thing is kind of that play here where

you know when we were thinking through the space and you're asking about the story um you know we basically uh started working with Dan Robinson who is uh you know kind of like really like the key inventor of unisot B3 uh and we were thinking through how to design a protocol that would work for nfts um and you know I think you can see a lot of the similar ideas at play in blend where instead of a pool model where you know everyone takes those same risk parameters you know when you're when you're uh taking a loan against a peer to pool or trading a security pool model you're not actually trading against a protocol per se the protocol really just forces everyone into the same risk parameters right so you're

trading against a set of liquidity providers and the peer-to-pooh model basically is just saying okay everyone's going to be on the same terms whereas in a peer-to-peer model you know you're trading against a set of liquidity providers but those OPD providers are expressing a much broader range of uh you know risk profiles and preferences so that's the same thing that's happening in blend and you can see a lot of analogs there if you're a winter mute or a sophisticated liquidity provider you're obviously going to pay attention to blend right you're going to be if you have eat that you want to supply you say well I can capture a higher apy and if you get comfortable with the mechanism and you know ample liquidity and whatnot and you know the risk parameters you know what it what do you

see in terms of the next like six 12 months in terms of professional market makers coming in here what does that do to the whole nft market and I know it's like it's a broad question but I'm curious I mean as to what you think this protocol the impact of this protocol will have on on the nft market and also potentially defy absolutely so I think you know ultimately the thesis of our and the goal has always been you know just as we've studied and seen in the token Market where as the exchanges created more advanced infrastructure that enabled you know deeper more institutional liquidity it actually enabled even more growth for the consumers right whether that's

Traders uh funds or you know individual uh retail um institutional brain liquidity and the full expressiveness uh that is unlocked through these economic Primitives enables more growth on the demand side and we are building blur to basically do the bring the same thing to nfts uh we have to do it in an nft native way because you know nfts as assets are fundamentally different than than tokens they are non-fungible so there's there's both fungible and non-fungible aspects of nfts but they are a different asset class but basically we're trying to build permitters from the ground up to enable a similar level of growth and you know over the next six months

what I would expect is you know all at the end of the day yield is yield and if you can provide yield on blend uh and provide econ blend and earn a higher yield than you can uh through other mechanisms then there that's that's that's uh Arbitrage right someone's gonna go and do that so we would expect uh over time more and more liquidity to come in to blend uh you know because on the on the demand side uh there is a lot of demand so the the users of the protocol these are typically you know nft Traders uh We've also seen um you know it's actually been really amazing seeing this kind of some of the the reception to blend uh you know in the past 24 hours we've seen people uh you know tweeting about like you know

joining the garden that's like for like a zookies for example it's like when you get in as a huge one in the garden they're like oh just join the garden like to eat um so there's there's people who want to you know hold on to an attit or you know uh you know even like almost like even like rent the nft for a period of time uh right or they want to buy the nft and they can't pay it all up right now so they'll buy you know they'll pay a portion up front and pay down over time similar to how people might use clarinana to buy a Peloton and pay it down over time uh so you have those people and then you also have traders of course as well who uh maybe they don't have the full amount of eat to take uh

the opposition a spot position but they can you know they have some so they can you know take a partial position uh and capture some of the outside as well that way so on the demand side that's that's what we have it's really the nft native people on the liquidity side we would expect that to be more professionalized over time we would expect that right now I would say it's it's it's not that as much we see some D5 people but it's more so it's still like a relatively inefficient you know Market they're still higher as you saw like the average APR on on a blend uh if the June dashboard is accurate is is much much higher than like the average yield on on like a D5 protocol so it's still like an inefficient Market but we would expect um you know people who kind of come in

first to uh uh you know to make like the most deal and over time the yields you know probably should compress but then also like the sizes should also increase in terms of like the total amount of liquidity so maybe you're making you know slightly less seal but on more you know on more AUM but we would expect that to be you know more like professionalized with the providers to put some finer points so it's been roughly you know 23 hours since you launched or 22 hours there's been 846 loans accepted um there's been a total of eight thousand eight hundred and twenty eight that has been loaned out so roughly kind of 15 million bucks or so uh I did notice that one of the largest uh liquidity providers was big Maki who has been fairly active and blurred to

say the least um you talk about inefficiencies like what are some of the inefficiencies that you're seeing right now and perhaps uh for someone that is looking to use blend if you're like a winter what are some of like the perhaps profitable strategies that you envision people kind of um deploying on blend yeah so you know I think I need to study the the data a little bit more myself just to kind of be able to give you like a thorough answer on that but ultimately I mean it's the same with any Market the the liquidity providers who will do the best are going to be the ones who um take the time to understand the

market and by understanding the market uh create you know Loan offers with the with the proper risk parameters of the proper lotvs that actually allows them to maximize their yield right so it's like if you are maybe you're somewhere in D5 that like wasn't looking at nfts at all and and then you looked at like punks for example you might be like oh it's like an nft it's volatile it's a liquid um I don't want to create any Loan offers more than you know 30 LTV because I think that this could crash at any time versus if you're someone who's uh you know been in the space for a while like for example there's one uh there's one account that's like punks OTC and they're like literally like the only Market maker for for pumps uh and they've been doing it like you know for

like the past like a year maybe more they really understand the market and they're probably going to be like okay you know I kind of have a sense of what the right you know market price or Punk should be so uh I don't want to do a 30 that LTV loan actually I'm willing to do uh 60 70 80 uh even maybe even 90 LTV loan um depending on the interest rate because I have confidence that my pricing is accurate and so I think right now uh the inefficiency is more so I don't think there's a lot of providers who you know deeply understand the market and also have liquidity and can create these Loan offers um you know over time that'll likely change although I would say it's the mft market has remained inefficient for

um a much longer period than I would have expected uh so you know we'll see how how quickly that changes but basically that's what I would expect over time is the people who really understand the market they'll be able to make the the best yield uh because of course if you have you know too low of a risk or too high of a risk that you can get hurt you know both ways right you either on paper you basically will just like make less than you otherwise would because your yield would be too low uh or you'll you know your risk Runners will be too too aggressive uh so the people who have understand it and can make offers in The Sweet Spot we'll do the best yeah a lot of what we talk about in nfts is the floor because you know for instance in a crypto Punk the floor is

kind of the more basic crypto Punk instead of in Terms of attributes um and so you have out of the 10 000 collection you have you know 20 or so that are just basic entry-level punks or a zoo keys or apes or whatnot certainly fair amount of like attributes that these nfts have or collections have talk to us a little bit about the plan in the future to incorporate more collections so right now you have three azuki's punks and miladies um where does this look in in the next kind of can you add what is the challenge as an opportunities to add more Collections and not just floor um nfts so for instance a zombie punk or a much more you know rare azuki or

whatnot yeah great great question so we started with three collections to start with uh Punk Suzuki's and the ladies um you know basically we wanted three collections at three different price points so Punk's floor is around like 55 60s is around like 15 um ladies was around like two to three um so you know three different price points for three different collections we wanted to start with three because we wanted to uh basically make sure that we concentrate attention and build up liquidity in those collections because you know blend only works if there's a you know somewhat efficient market right it it works over the long term because like the market does just become more efficient over time

um like just by default but we wanted to basically minimize the period in which it was inefficient we wanted we wanted that period of inefficiency to be basically zero so that's why we started with you know three questions to start and then once we feel comfortable with a level of liquidity uh in those three markets then we'll add more collections um you know that could be uh a period of weeks it could be a week it could be a few days uh it's really just a matter of just kind of like analyzing the data and be like okay like do we feel good about this like okay like let's have the next collection let's add the next next collection do I think the limit of that is eventually you get to a collection where it's like okay there's just not really enough you know borrower interests on it right there's

not enough of a of a pedigree and not enough of a history and so there's not going to be like borrower demand there's also not going to be much like lender demand and so I think like at a certain point just like it stops making sense to uh you know like the ultra long tail probably doesn't make sense but like if you look at like exchanges or even like D5 protocols like the the ultra long tail is not really a thing either blend being peer-to-peer can actually support many more markets than a typical period of pool model because since the periodical model keeps the same risk parameters for everyone they have to be more conservative like if you look at like Ave for example or compound it's like they only have like eight ten markets where it is in a peer-to-peer model you can actually have much more if

you look at 80 exchanges for example um you know they have many more markets that you can borrow against I think if you go on binance it's like there's like hundreds so you can borrow yeah so that that peer-to-peer model actually enables more markets but basically I think we just keep on adding markets until it doesn't make sense and then in terms of uh you know liquidity for like the trades like the rare you know Zombie products Etc uh you know that's absolutely something that we are going to explore afterwards in general right now a lot of blurs uh like product and protocol has been built around the floors because that's the most active yeah and and look what it is but the thing that really excites us about nfts

is that you know since they are non-lungible you also have these traits and and there's also like not even individual traits but there's also Grails as well where it's just like one of one yes how do we uh you know enable more liquidity for that that's something that we'll we'll focus on afterwards um I think that you know that's probably something like just thinking off the top of my head um I would imagine that some of the parameters would be needed would need to change for enabling like trade Loan offers like for example um I think Bland would be well suited for traits that are um that have like a relatively active market right so maybe zombie pumps trade like too infrequently for blend to to really make sense

um but you know there are certain attributes where it's like okay there's there's enough of a history there and enough activity that it makes sense um I could imagine us using a different uh creating a different like lending protocol just for like individual nfts um just because it's going to be a little bit more a little bit more customized for that but you know focusing on trades is definitely going to be something that uh we we direct our attention to next as core contributors yeah I want to talk a little bit about the apy and I know the data is you know it's fairly early still but you know there's season two so a lot of folks uh you could argue that the apy is being kind of distorted because people are kind of hoping to get you

know a few or more points and you know get the airdrop but in a kind of a steady state kind of efficient market um where like you could presumably see a whole lot of well not on aestheticity but like you're probably going to see after the 30 hour window like a constant amount of automatic refinancings right because so say that I was one of the first ones and I'm willing to lend you know at a certain apy and then that moves which has been moving quite dramatically right when I looked two three hours ago the apy on some punks the median was like 28 now it's jumped all the way to 60. well if I was lending at the 20 range upward immediately

or like as soon as I practically can will trigger an automatic refinancing that rate that loan should reprice right absolutely um and so I guess my question is perhaps what's that apy curve like like is it going to be super volatile initially and then it kind of stabilizes or do you constantly expect these kind of wild fluctuations and rates I think ultimately if the market conditions change then the apy will change to reflect those Mark conditions and that's a feature not a bug if if you have risk parameters that are staying

constant even through volatile market conditions then the only way that that can make sense is if the lender is basically being so conservative that they can you know handle that volatility um which means that you're gonna have much lower interest uh much lower ltvs much much rates so we expect in the settings let me just interrupt in that case wouldn't the borrower if he's getting a super low apy sorry a super low LTV like why would he accept that in the first place yeah so I mean currently uh prior to to blend there were other protocols that like Europe here where it was like 50

LTV um and you know I had had some usage but uh you know less less you should less you should usage then blend um I think you know in the market it's like that like that's a great question is like as a borrower you're probably not going to be as interested in that super low LTV uh loan so you're you know and I think that was kind of reflected in in the market data empirically when you enable higher ltvs across like the full range of people than uh of risk parameters than you know people who want to take a low LTV loan or are comfortable with that they can do that but then people who want to take a high LTD loan can can do that as well and and enables basically more Market participants I guess more Market preferences to match right because

that's what that's what blend you know as a Marketplace yeah we match you know buyers and sellers and as a lending protocol and I'm saying we here like speaking like as like from like a protocol perspective as a lending protocol you know we match you know lenders and borrowers and so if you allow the full expressivity then you can you know match a lot more preferences uh so that's that's why we were pretty confident that when we launched this we would also see a lot more usage than we've previously seen on on some of these other Landing protocols Hi man do you think there's any analogy here with thinking about options and perps and why and crypto like options still haven't really taken off yet the perps have such a high volume and I

think part of it's just probably Market maturity but when you're thinking about this when it's peer-to-peer versus peer-to-pooh it kind of makes me think of options versus perps because the options are customized based on you know duration and so forth so I'm just curious is there anything to learn from that that would apply here yeah I think that there there is and it really has to do with who the participants are so we think about like options you know options are I guess when you drill down into it fairly simple but the ux of options is is so confusing and complicated and so it's not really gonna get

a lot of usage from you know normal crypto participants it's more so institutions right like people who are using derabit it's not like it's not like individuals it's like more so like institutional accounts um and it's just like a more advanced uh Financial primitive I would say whereas purchase is something that is something that uh like basically like any Trader can use and wrap their heads around uh on on the usage on the ux side um I think the pricing of purpose is like quite complicated like if you if you start asking people like oh like how do perps work there's like very few people that can actually explain how it works but as like a user it's like anyone can kind of go and use that and it's like fairly straightforward and I think a similar thing a dynamic exists

here where if you actually go on blur and try initiating a buy now pay later transaction or uh try uh borrowing against your nft the ux is is fairly straightforward but on the liquidity provider side it can be a lot more advanced so if you go to the loans tab of uh of of uh you know like Punk Suzuki's or milades you'll notice it's it's looking a little bit complicated uh and and that's just a function of you know the liquidity providers are going to be different participants than than the users um that doesn't that doesn't mean that options will never like for example like nft options that doesn't mean nft options will never be a thing but when

we think about you know what makes sense of what will work it I think it's just like based on the market dynamics it really you have to look at like who the users are in order to Think Through the adoption of it um I do think there's a world where nft options uh can can become a thing but I think it's that's probably a more mature larger market probably where where nfts are uh not just pfps but maybe like real world assets maybe like even like homes or things like that like I think I think when Once nft starts digitizing and putting on chain more assets than just pfps because I think options could very much become a thing and ultimately when when we think about

the market you know I think there's like a great like Naval quote where he's like you know tokens are gonna eat like you know all all assets right like everything is going to be like tokenized like every every fungible thing is going to be tokenized you know we have we share a similar belief for nfts where you know tokens might be you know fungible assets but non-plungible tokens are going to eat non-fungible assets um you know the ux is so great you can you know it's like a 24 7 Market it's worldwide uh we think the that as a primitive 10.

grow massive like really into like a trillion dollar market I think as of right now in terms of the market maturity I would be surprised if something like options uh become super popular um so um I've heard you say in the first episode we recorded about you talking about blur you did mention that it was very much built for a neglected part of the market which was kind of Traders right nft traders in this case um you know I'm just kind of like referencing a a tweet by DC investor uh you know fairly well-known collector he says Hey listen you know you know the idea that you have to constantly monitor this position and you know within 30 hours you could you know have to kind of take some sort of action makes me think that and I'm quoting him

that this is really a product for people that want to go long in a particular nft and you know have the capacity to monitor this 24 7 or have a really short duration um would you agree with that is that when you're kind of architecting bland you were also taking the mentality of we're just gonna cater to kind of more professional active kind of traders in the market versus collectors is that kind of a fair statement yeah I would say that's not quite accurate um I think right now when we look at who's using it you know blend is such a new protocol that it's only people who

are uh going to be more risk on and experimental that are using it uh there's a lot of uncertainty around the Dynamics at least you know from a market perspective right and so that means that people who are like collectors that because oftentimes collectors they don't want to give up their Grails or their nfts but they they might need liquidity and so you know they'll still want to take out loans and that's serving The Collector Market but I would expect right now that you know for those collectors when they look at blend they're like okay this is like a new thing I don't really know how it's going to play out so I'm just going to kind of sit on the sidelines and decide later but ultimately this kind of mechanism due to the Perpetual nature of it when we when we were designing blend

we also would talk to you know some of the Traders or uh you know like big whale collectors and we actually found that for them having a Perpetual mechanism is actually much more user-friendly than having like a fixed duration that's like the other you know popular model for peer-to-peer uh lending is you have fixed duration and what we found was that actually for the fixeration is like basically if you take out a loan for like 30 days you need to set a reminder 30 days later to pay back your loan uh otherwise you lose your nft and we saw instances where we're literally like the collectors might have had enough eth and uh could have repaid alone and actually wanted to repay loan like specific uh instances of this where they wanted to um but they

forgot and they like didn't get the notification in time or something like that uh and then they like lost to nft as a result and so that's like a very unfriendly ux for borrowers worries with blend the uh basically the liquidation mechanism is really due to Market liquidations like in an efficient market the liquidation will only happen if the market conditions change it doesn't happen when the lender just randomly liquidates and you know it's like 3am at night and you didn't you know get the notification then you get limited that in the city state that actually doesn't happen and decided to see what happens is oh the lender wanted their liquidity back okay fine another lender sucked in and took over that loan so in the steady

state for collectors they can actually take out loans against their nfts um without having to worry about a liquidation unless the market conditions change and what we've found is you know pretty much everyone in the market will have some sort of pulse on the market conditions like you know you know Bitcoin crashes or if it pumps right like as like a Bitcoin holder you know even if you're like passive you kind of are aware of marketing conditions so this is something where when you think about like the Dynamics of people in the space it actually creates a much simpler ux um and we also send a notification when that happens it's not just actually added email notifications as well so not only are you probably already monitoring the market and aware of the marketing

conditions but you also will get a notification as well if if you're getting uh if your loan is you know an option and and and it looks like the market conditions have changed and maybe it's like not finding uh another lender as quickly as desired um so yeah basically my my thesis would be in the city state this actually becomes much easier for collectors than having to set like reminders for for different loans um of course that's something that the market still wants to see play out before calendar of embracing it and to put a finer point I mean obviously this is early data but like if you're getting eight percent six eight percent on your stake teeth or whatnot even obviously fairly low or not staking your eth and you're able to earn you know 10x that

um you know as as rate stands right now obviously things will change pretty dramatically but nonetheless you know they're fairly they're fairly High yeah sure some of that is you know nfts are by definition riskier kind of collateral types I get that but they're you know even in this Dutch auction mechanism I think your points are right one which is there there will be an efficient market where someone steps in and is willing to supply you know and kind of pick up that loan right um even though liquidity dries up there are always kind of Market participants out there presumably that are willing to supply liquidity at the right rate yeah yeah like you know I'm I guess I'm reminded of the day we're like black Thursday happen or Black Friday I forget it was like Blurry set of 72 hours where

maker had this problem where it was a whole set of issues on the it was two problems one it didn't have enough of a keeper system like meaning people that were bidding on the collateral gas prices were really high so people weren't the bids were not going through and the Oracle was kind of all over the place so it was like a perfect storm of things and in this case it's just a bit different right you certainly have to keep in mind like the you know the Flora punks does matter right um you know kind of the the floor punks all of a sudden drops from 60 to 30 well you're gonna have a problem right across kind of a lot of the the loan book right people can automatically want to repinance that is that that's like kind of a fair statement right yeah yeah

basically you know from a borrower perspective this mechanism honestly it's it's more borrower friendly than lender friendly because if you have a position on an exchange and the market conditions change you know you're getting liquidated overnight right everyone you know who's who's in the trading space or in D5 we we've also had tweets where people like oh yeah like went to sleep and woke up and my my account was liquidated so that that happens you know fairly often and that's a risk of you know that and exchanges need to do that because they can allow they can do more aggressive positioning and they really need to be able to you know liquidate people instantly raise on blend the local conditions happen over 30 hours and so as a borrower it's actually like whatever the

borrower friend that you like like however borrower friendly taking a position on exchanges it's significantly more friendly with blend just because the liquidation mechanism is is not instant it's 30 hours just on this point um back to the maker example there are very few Keepers meaning just people that were supplying liquidity you're buying the bidding on the collateral or those being liquidated in this case you talk about like sophisticated people like punks OTC who knows the punk Market extremely well what like in the stress scenario where in this 30 hour window could there be a situation where there's very few lenders out there

that are paying attention to this stuff that they coordinate and are willing to kind of push the apy up to that limit right because the incentive because they're like three people and you all know that's always the same three people showing up when these Dutch auctions happen when the incentive is to wait till 29th hour and then start kind of bidding right um on this refinancing auction Santi on that too I just want to add that I've also heard some concerns like if you're taking a 90 LTD loan um and then it's 30 hours or up and it goes into an auction like especially if if those lenders maybe control some of the floor price to some extent I think

this is really just a problem the market being mature or not like at the beginning but uh if you could take out a 90 LTD loan like who's going to take that uh bid in the auction just because it's such a risky loan against like an inherently you know illiquid asset class yeah great question so from that perspective you know I'm just looking at the the stats um right now and currently um so far in the past 24 hours there have been 243 lenders on blend I don't know exactly like at what point it's like that sort of like you know it's it's really a prisoner's dilemma right it's like okay you'll you might

you might coordinate but really the first person to not coordinate is gonna be the one that that keeps the yield and makes the best deal and with on-chain activity it's like I can be like oh hey like we're gonna go and coordinate and then oh no like a fourth wallet like a fourth mystery wallet wet and and broke this promise and and they got all the yield and it wasn't me um so I think you know the the issue with the thing about prisoners dilemmos is that it's so brutal like people defect so often the default place so I would be I would feel pretty confident in that not happening and and 243 is a large enough set that like like even with just with like three people with this kind of dynamic uh or even just two

um I would I would not go super comfortable betting on uh I guess a prison with this many people it's like I would I would be incredibly surprised um you know one of those you know a few hundred people is is going to defect in uh and they'll you know they'll they'll do the refinancing at a good rate because they can make a profit yeah yeah let's uh on this point if if you're a less sophisticated liquidity provider and you have some meat laying around and you're you know you know the collection really well or you have some understanding nfts or even maybe you don't is there anything to remind me of the mechanism is there an incentive to get points for the season two or something where for you to kind of indicate in the order book of where you're willing to

supply liquidity in certain terms yeah so the way the lending incentives work is you know and just just for context for season two we have two types of points prior to blend it was bidding points and lending points um and they're both like equally weighted so you know basically like at the end of season two like bitters would get half of the airdrop and listeners we could happen to airdrop and what we did with the introduction of land is we didn't want to like dilute that at all uh so what we did was for the collections with blend enabled we disabled the listing points and redirected them to lending points so like if a collection we're gonna get let's say in a month 100 points you know 50 bidding and 50 listing uh with blend instead of being

the 50 it gets zero listing points and then 50 lending points so the total sum is still 100 it's just you know the the allocations have shifted and the lending points are rewarded to lenders who create Loan offers on the order book um a lot of people ask us oh why not reward people for taking positions um but the issue is taking a position is the same as uh incentivizing volume anytime you incentivize volume you just create the incentive for watch trading and especially with uh even with a small fee the watch rating is going to happen but with blend there's there's actually zero fees for borrowers and lenders and so what that would happen is you would just see a lot you see volume Skyrocket

but that volume would just be pretty much fake and you we've seen that as well in D5 it's paid out you know numerous times where protocols will will create incentives for taking out positions and uh and then after the incentives uh you know die off you see the the borrowing volume just like drop off click uh because it was never real in the first place so every incentive we've ever done at blur has always been focused on liquidity and not borrowing so like everyone taking a borrowing position on blend they don't get any rewards for that the only reward they got is that you know they had a nice loan offer at a pretty high LTV at a pretty good interest rate uh and and

that allowed them to make a trade uh or borrow more Ethan they otherwise might have been able to so basically the goal of the lending incentives is to create you know good liquidity conditions for borrowers and then those liquidity conditions on its own should be what draws the borrowers in this is similar to how on curve the curve incentives they only reward liquidity you don't have any incentive to trade on curve any of that volume on curve is is not due to any sort of like volume incentives it's due to curves incentives creating good market conditions for the users of the protocol uh which is what we focus on as well yep that makes sense you talked about that in the last episode that we did so everybody will have to check that out um one one tangential question I have is

um with this buy now pay later and also it seems like maybe there will be a little bit of a focus there on more to retail even though I know blur overall as you said in the last episode is like prosumer focused I'm curious there's been like a shift to mobile it seems in crypto lately and I know like gaming will then you have uniswap also the Sega phone how do you think about like that in general crypto shift to mobile and is that something you're already thinking about because I'm just imagining for example you were saying how you give email notifications will be pretty sick if I had an app that I could easily do a buy now pay later nft and then also I get notifications like hey you might need to top up here or you know some action being called yeah absolutely I think when we think

about you know while we're aiming to build as core contributors you know there's a lot of inspiration that we can take from the token Market because the Hogan Market is much more mature than the nft market right NFC has really only popped off starting in 2020 tokens have been around you know since the 2010 right so tokens token infrastructure has had a decade more to develop and when we look at uh you know protocols and and companies of your life you know unisop is a good one of us right they launched like a mobile app that was nice but I think a much better model is is binance where you can see that they started focusing

on the crypto natives but then they built out a broad Suite of products over time to cater to uh the entire you know horizontal segment of the user base and when we think about how to grow and develop products you know similarly you know you can think of blur as kind of building the binance of nfts is a mental model uh now of course it takes time to build that out and so what you've seen if you look at us like empirically what we've done we focus on the the prosumer market first uh because that is the market that we still believe is like the most underserved But ultimately when we think about you know collectors and uh and even retail right like the next wave uh for the next bull market right now we're still in Bear Market but in a bull

market you know we want to have solutions for the entire Suite of of users uh but it's just it's going to take time to get there of course I know we're coming up in the hour here and I'm curious um you know it just feels like yesterday that you launched blur and now you've launched blend what's next on the roadmap I mean there's a lot of hype around real world assets I mean as a reminder nfts it's not just art I think art is just the Segway the beginning of what else is kind of possible Right um but I'm curious what what are you thinking about next yeah I think you know one one thing we've always done is we've kind of pretty much never shared uh what we do

uh what we have planned uh you know we kind of not even not even with investors to be fair I had no idea that you were going to launch this and you ping me hey can we record a podcast we're launching something and I was like uh okay I have no idea what this is yeah I'm sorry there's one investor that was like dming me like a few weeks ago and was like oh like I I hear on the great mind you're launching like NFC perps and it's just like I just like ignored it um so yeah even with with investors we don't we don't share uh anything typically I would like to just you know release the thing that that we're working on um and we've been really grateful that uh that everyone like like Santi has been uh supported uh even without a lot

of information um but yeah we typically don't like to project uh and just and then just ship but you know I think for the near term for us there's still a lot of low hanging fruit that we need to work on so you know even just like for blend right now like a lot of the activity it's not integrated with the activity feed so it's hard to monitor as like a lender you don't really have good stats it's like a borrower you don't have to use that so of course there's functionality to be built around that and um you know so not just on the protocol side but on the the application layer and then uh you know still for the blur Marketplace itself like there's you know basic low-hanging fruit things like we still need to support trade bits we still need to support individual bids we

still need to um you know have more collector-friendly uis and uh we also need to optimize The Gas We were very fortunate to be able to work with Transmissions 11 who uh is on the research team at Paradigm he's like this like basically like gas optimizing like it's like a gas expert who's like a gas exports in high school it's really hilarious but he's like the best like he's like one of the best solidity developers in the world and he really helped a lot with optimizing gas for blend he's also a top contributor to Seaport as well which is um you know open C's very gas optimized Marketplace and so for blur uh one of the most common complaints that we see is um you know that the gas is is pricier than other marketplaces now for uh any collection that's like priced at more

than like 0.5 you it becomes mostly irrelevant uh for most uh for most people buying salary just because like the gas is such a small portion of the total cost but then for like cheaper collections um it becomes much more significant so there's just like low hanging fruit like that and that's something that um yeah it's funny because when we see commentary in the market a lot of the commentaries around where blur is today but we've been building for 471 days um you know the the competitors that we uh you know are now like larger than from a volume perspective but um uh that we had to compete against you know they've been around for a literally like five years right so there's like a lot of uh there's a lot of infrastructure to build both on the

protocol side and on the infrastructure side um so also we want to make sure that we can go and we launch blend we want to make sure that we're not ignoring the core user experience as well um and so just focusing on the low hanging fruit uh in addition to to you know some of the you know the bigger like splashier things that we're really excited to release um we really want to make sure that we focus on the basics too one um just point that I want to clarify on the point system um it's hard to go back but is there a kind of like a mechanism in how the points are calculated based on the duration of the loan Yeah so basically it's very similar to you know you know how on curve it's like

you get um uh the rewards based on the duration is over time right and then they take like the integral and um and they do it and and on on blend it's it's similar it's you you basically get rewarded uh points based on your loan sitting on the book over time because it's the risk that you're taking it's the risk of the liquidity that you're providing over a period of time so you should get more rewards if if you keep it on there for longer um so yeah hopefully that answers your question yeah you're basically taking a weighted out like wait whatever like duration and volume not just pure volume right of loans right because then you could yeah yeah exactly and and yeah and I would hesitate to say like like yeah

like volume of the liquidity is uh not just origination but duration as well that's what I'm trying to say yeah exactly that makes total sense well this is great uh Garrett any other questions and before we no that was great Pac-Man any porting thoughts um before we wrap it up yeah I think ultimately you know when we looked at the space we we really like thinking about it as you know if you look at how the token Market grew it really grew on the back of the underlying infrastructure developing and growing right as the infrastructure became more institutional grade it allowed larger

providers to come in larger players both on the demand side and on the supply side from a liquidity perspective and I have these what we saw was a incredibly inefficient Market uh both from the existing participants but also from a capital perspective if you have a hundred thousand dollar asset and it's traded at that you know for the past you know two years or four years uh you know through bowling bear markets then there's value in that that you should be able to unlock uh and if you're able to unlock that value then that means that the market can be more economically efficient and it can it can grow larger if you look at the token Market it grew massively

with the introduction of these economic Primitives so you know the majority of volume in the token markets actually comes from this financialized infrastructure for Bitcoin uh like the spot trading volume to like derivative trading volume and that's like a big bucket of things of course but the spot derivative trading volume derivative trading volume is currently like 10x the spot volume so the vast majority of economic activity that is unlocked is literally basically through this infrastructure it's like literally 10x for nfts it literally had almost you know relatively zero uh you know financialization you know prior to the introduction of blend and so when we think about that we're really excited to introduce this financial infrastructure

that you know we believe will enable more liquidity to come into the space more economic efficiency to be unlocked a more economic value to be unlocked and basically allow this space to grow much much larger um and that's useful not not just for the space as is today but you know as we see the thesis you know our thesis play out of nfts eating the world of non-fungible assets that infrastructure you know a lending protocol whether you're using it for pfps or railroad assets or you know whatever it is the NFC is encompassing um the the Primitive is the same so we're really excited to see you know what this uh infrastructure can unlock yeah no stuff in there it's really exciting and encouraging I mean it's been less than 24 hours and I'm already fascinated constantly refreshing this dashboard uh to see where the rates are

and you could just Envision a whole set of products that are built and New Primitives that are built on top of this so really excited uh I know you're not going to disclose it but I'm sure there's a ton of stuff in the Whiteboard that it comes next and so we'll probably have to have you on I don't know three six months a month I don't know it seems like you guys are shipping at a record pace so this has been great I really appreciate going deep always uh really um insightful discussion so congrats and um yeah keep up the great work thanks for coming on the channel yo just one one last comment as I'll say it's quite interesting because with this infrastructure and The Primitives you know we're starting to see out definitely much more of an ecosystem develop around it as well like the

dashboard that you're refreshing that wasn't built by us that was just built by a Community member um and as as The Primitives unlock more behaviors we're excited to see a lot more develop uh even outside of just the core contributors and you know seeing that already starting to play out is super exciting uh but yeah we're definitely gonna be working to contribute uh you know our own developments too awesome Pac-Man it's always a pleasure thanks for coming on the show really appreciate it [Music]