This article was compiled and organized by BlockWeeks
NFT Lending Volume Hits All-Time High
The NFT lending market has recently surged to highs not seen since the peak of the 2022 bull market. In the second quarter of 2023 alone, NFT lending volume surpassed $197 million, and this was almost entirely driven by the new lending platform Blend launched by Blur in early May of this year.
Blend is now the most widely used NFT lending platform, with more than 2,300 borrowers and 1,500 lenders. Since its launch, Blend's cumulative borrowing volume has been approximately $921 million, involving about 62,000 loans. Although most of the platform's trading volume is contributed by a small number of users, the continued growth of active users is still a positive signal for increasing adoption.
At the data level, weekly NFT borrowing volume in the second quarter of 2023 hit a record high of $197 million; year to date, cumulative NFT lending volume has grown by 270%; and the total number of users in the market continues to climb. At the same time, Blend's top 10 lenders contributed 48% of the platform's total lending volume, the top 10 borrowers contributed 26% of total borrowing volume, while as much as 68% of lending volume was driven by airdrop farmers.
How NFT Lending Works
Blend and other NFT lending protocols provide holders who want to use their NFTs to obtain instant liquidity with a convenient solution, while also giving lenders the opportunity to earn yield with ETH. Such protocols usually operate as peer-to-peer (P2P) lending markets: users lock NFTs as collateral in escrow smart contracts and apply for ETH loans within an agreed term, secured by the underlying value of the locked NFTs.
Borrowers receive offers from potential lenders, and the offers include specified collateral ratios and interest rate parameters, from which lenders can select the most favorable terms. Among the many collateral and interest rate parameters, there is a liquidation level, which is used to set the loan-to-value (LTV) threshold relative to the value of the underlying NFT collateral. Once liquidation is triggered, the escrow smart contract transfers the NFT used as collateral to the lender to settle the outstanding loan. After the loan is activated, the borrowed ETH can be used to buy more NFTs, thereby effectively establishing a leveraged NFT position.
A commonly used analogy in the industry is that a loan collateralized by an NFT is equivalent to a prepaid put option—if the true value of the NFT falls below the loan amount during the loan term, the most rational thing for the debtor to do is to default and exchange the borrowed funds for giving up the NFT. By holding the NFT (locking it in the contract), the borrower constructs a "put option + long" payoff structure, which is quite similar to a call option.
Blend's Rise and the Reshaping of the Competitive Landscape
After the NFT market peaked in April 2022, NFT lending activity once saw significant volume expansion. Initially, the market was mainly dominated by Bend and NFTfi, which held 63% and 23% shares respectively. In December 2022, new competitors such as X2Y2, Arcade, and Paraspace entered the market, intensifying competition in NFT lending. Bend's and NFTfi's shares shrank to 12% and 19% respectively, while Paraspace, X2Y2, and Arcade captured 35%, 25%, and 6% respectively.
Before Blend appeared, NFT lending volume was slowly recovering from a historic low in November 2022, with cumulative lending volume growing 270% year to date. Blend's overnight explosion pushed lending activity to new highs within weeks. It is worth noting that the trading volume Blend generated in the past six weeks ($921 million) exceeded the full-year results of most of its competitors.
Like other NFT lending platforms, Blend adopted a conservative strategy, initially supporting only a few mainstream NFT collections because they have higher liquidity and lower risk. At launch, Blend only allowed users to borrow ETH using Miladys, Azukis, and Wrapped Punks as collateral. Since then, Blend has gradually expanded collateral to other blue-chip NFTs, but Azuki remains the main collateral collection (706 active loans). Since its launch in May of this year, Blend has captured about 95% of NFT lending volume.
A User Base Dominated by ETH Whales
Blur's user base is mainly composed of ETH whales, and the same is true of Blend's lending users. Blend's top 10 lenders contributed 48% of the platform's total lending volume. Among them, wallet address 0x8BC stands out especially, contributing about 7% of the ETH issued to borrowers. This wallet holds about $19.7 million in assets, mainly ETH. Notably, 0x8BC received the third-largest Blur airdrop, totaling 2.97 million tokens (about $1 million at current prices). Many top lenders received substantial BLUR Season 1 airdrops, suggesting that the biggest beneficiaries of the first airdrop round are still the most active users on the platform today, and they are very likely incentivized by the upcoming Season 2 airdrop.
An analysis of the wallets of Blend's top lenders shows that these users also hold NFT collections ranging in value from five figures to seven figures in dollars. It should be noted that seasoned NFT collectors usually spread their collections across multiple wallets, so each user's actual total NFT holdings may be much larger.
Compared with lenders, Blend's borrower group is less concentrated and more diverse, with the largest borrower accounting for no more than 4.5%. For reference, Blend's largest lender accounts for 13%. Clearly, there are more borrowers than lenders on Blend.
Although Blend's borrowing volume is more evenly distributed than its lending volume, borrowers are still mainly wealthy NFT collectors and ETH whales. This finding reinforces a judgment: so far, NFT lending is still a tool dominated by sophisticated, wealthy NFT collectors.
Another noteworthy point is that while NFT lending activity on Blend has risen, Blur's overall trading volume (excluding the portion used to buy NFTs with loans) has been declining. Since May 1, 2023, Blend's weekly cumulative lending volume has been 43% higher than Blur's weekly trading volume.
Sustainability in a Bear Market Is Questionable
There is one key trend indicating that the current lending volume is not organic growth and may be difficult to sustain. On Blend, more than 68% of approved loans are at 0% annual percentage yield (APY), indicating that users care more about farming airdrops by accepting offers to earn points. At the other end, 20% of loans have interest rates between 10% and 20%, indicating that borrowers are willing to pay any price to accumulate points for the upcoming airdrop.
This wave of increased activity is beneficial to Blur in the short term, but once the lending incentives stop, user participation and trading volume may decline. Therefore, Blend will face the same user retention challenges as other NFT lending platforms without token incentives. After Season 2 of the airdrop ends, because lenders have no incentive to accept 0% APY terms, Blend's borrowing and lending volume will drop significantly. The loss of lenders will inevitably shrink the borrower base, ultimately causing lending activity to plummet.
Conclusion: The Wave of Financialization and Its Short-Term Limitations
Blend's immediate impact on the NFT ecosystem is that it has educated new users about airdrop mechanics and also exposed seasoned NFT collectors to competitive lending products, thereby spawning new trading strategies around highly liquid NFT collections. The financialization of NFTs will be one of the many developments that drive the industry to new heights, attracting more new profit-oriented collectors and thereby increasing the overall liquidity of the NFT market.
However, in a bear market environment, it is difficult for NFT lending to find sustainable product-market fit—key indicators such as cumulative trading volume and the number of traders are at historic lows. Although Blend's case analysis reveals only one segment of NFT collectors, lending is essentially a leverage tool used by sophisticated traders. From this perspective, in the short term, NFT lending products will not be aimed at retail collectors.
