Dialogue with Blur's core contributors: How to broaden the road to NFT transactions?

Original source: Podcast HODLong Houlang, if you want to listen to the original podcast,please click on the link

Original text arrangement: Block Rhythm BlockBeats

Last year, the NFT market was surging due to the emergence of Blur. Blur's new model brought new passion to the stagnant NFT market. However, as time went on and the first wave of airdrops ended, this enthusiasm did not seem to last. This year, Blur launched Blend, a lending agreement for the NFT market, which is further broadening the way for NFT transactions. In this podcast, Mable talks to Pacman, Blur's core contributor, and listens to him talk about Blur's original intention and goals, and how Blend will stir up the NFT market again.

Moderator Mable:What you are listening to now is HODLong Houlang, I am the host Mable. Today we are very excited to welcome a very interesting guest, Blur core contributor - Pacman. Thank you for coming, can you briefly introduce your background to us?

Pacman：Thanks for the invite, and hello everyone. I'm one of Blur's core contributors. I started working as a software engineer in Silicon Valley about 8 years ago. Started as a software engineer at a technology company called Teespring, where he worked for about a year. Then I took an atypical path: Dropping out of high school at 17 to go to Y Combinator (YC). I started my career through YC, but that same year, in the winter of 2016, I decided I wanted to go to college. So I ended up applying and going to MIT after my YC job ended.

So basically I dropped out of high school, got a job at YC, and went to MIT. I studied computer science at MIT for two years. Then I met Alex Atallah, another core contributor to Blur, who focuses on neuroscience and AI. We hit it off at first, building various projects together, and then we left MIT to start our first business. Atallah graduated a year early, I got a Thiel scholarship (set by Peter Thiel), V God also got this scholarship, and then I dropped out again...

I then started Namebase with my co-founder, which was our first business together. Namebased is a segmented market, an auction and trading website for HNS domain names. We ran it for 3 years and sold it at the end of 2021 to Namecheap, the second largest domain name registrar in the world. Then basically throughout the same year, I personally liked NFT very much, I started Blitmap as the first NFT in my life, and sold it at around 25 ETH.

Then I was really fascinated by NFT, I was attracted by this energy. I especially like the way NFTs are traded, but when I trade NFTs, I find myself getting more and more frustrated with the infrastructure. The leading NFT marketplace at the time was Opensea. Now Blur's sales are much larger than OpenSea, but at the time Opensea was the largest marketplace. I found myself struggling with the infrastructure, and I really wanted something more like NFT finance, a very advanced NFT trading platform. So we basically wanted to build this.

We started building Blur 472 days ago, probably since January 2022, with a team of 10 people. Many in the audience may be familiar with Blur, but I'd be happy to dive into more details.

Mable：Does your early experience with Namebase help with NFT work and transactions? what help?

Pacman：Definitely helpful. Namebase was actually a very foreign experience for us because in a nutshell, Namebase is Handshake's decentralized domain registration platform. But because it is too niche, there is no reliable Handshake infrastructure at all. We had to build all the infrastructure ourselves. So we signed up for cryptocurrency services and also built our own spot trading platform. It has only one trading pair, HNS and BTC.

In fact, some Chinese-speaking users may be more familiar with it, because there was a large-scale airdrop, and many Chinese-speaking users of Handshake got these airdrops at that time. I think that experience has been very helpful for Blur because when we looked at the NFT market, we realized what we really wanted was something like an advanced NFT trading platform. We know we're capable of building it because we've built a very different kind of exchange, which is a centralized exchange and domain repository. While Blur is a decentralized NFT market on the Ethereum protocol, the concept is similar, which is definitely very beneficial to us.

Mable：You mentioned infrastructure, but I want to come back to that topic later. Can you define Blur first, such as who is your target audience and users?

Pacman：Blur is a marketplace for professional NFT traders. This means that the infrastructure for trading tokens, for example, starts in a very simple way. We first conducted peer-to-peer transactions on Local Bitcoin, and then on platforms such as Mt. Gox, users began to have a very simple retail trading experience. Then over time, the infrastructure developed and became more and more advanced, Coinbase Pro appeared, BitMEX, Deribit. Therefore, this advanced financial infrastructure began to develop, which really promoted the development of Token and NFT.

Before Blur, what we had was basically a very simple buy and sell experience in the existing marketplace. Before, there was no market that really focused on serving NFT transactions. And services specifically for frequent transactions are the reason for the vast majority of transaction volume in the NFT field. So we started to build such a platform, which is a bit similar to how you start using Coinbase Pro or Binance to trade tokens.

Starting with spot trading (development), we recently launched Blend, a perpetual peer-to-peer lending protocol for NFTs, which has also been integrated into the Blur marketplace. So now you can trade NFTs in a financialized way that wasn't possible before.

Mable：When you're targeting Pro Trader, what do you think this type of trader is most concerned about in terms of Blur product design? Compared with some players at the time, you put more emphasis on the concept of infrastructure. What else did you optimize for Blur?

Pacman：The easiest way for me to understand the difference between Blur and the other market players that existed before Blur is if you look at the difference between Binance, BitMEX, and Coinbase.

If you use Coinbase, it is a very simple buying and selling experience, simple UI, just enter the amount of Bitcoin or Ethereum you want to buy, click to buy, it is a very friendly retail buying and selling experience; and if you use Binance, BitMEX or any other advanced trading platform, you have depth charts and order books, etc., everything is updated in real time, the concentration of information is very high. For a newcomer or retail buyer, this can be quite overwhelming.

For an advanced trader, if you're trading at scale, buying and selling NFTs in bulk, that's the NFT interface they really want, and that's what we built for Blur. It was like the first product we built back then, which ended up introducing a more efficient way to execute trades in the market through smart contracts. But basically, at the beginning, we just built a platform with more choices for target users who are actively trading NFT, rather than retail investors, novices, because maybe they just want a very simple normal shopping experience. We focus more on very active traders.

Mable：Let's talk about "speed". Because Blur always emphasizes "speed", for example, you will say that you have the fastest speed, 10 times faster than any other market, and so on. What specific product or technical optimizations have you made to make Blur stand out?

Pacman：There are many dimensions that we focus on. One is the first platform to exchange NFTs in real time. At the time other marketplaces were really treating NFTs as a shopping experience, which was great for retail, but not for big traders. This means that for popular NFTs, it is basically difficult for buyers to complete transactions, because you try to buy an item, but when you click to buy, these items have already sold without you even knowing.

So we actually built real-time infrastructure from the ground up to support this kind of transaction, and we know that the NFT market has to deal with very large-scale transactions, and all the markets we see are dealing with related issues, but the speed has not been resolved.

Scale is necessary, so to build Blur we actually recruited a bunch of friends from MIT who had worked on real-time systems and transactional systems in the past. So we recruited our engineers from companies like Citadel, Five Rings Capital (a trade fund), and Twitch, and we were confident they could build this real-time infrastructure.

Then on smart contracts, we also rehired an acquaintance from MIT. They have worked with Starkware, MakerDao before. We built a bidding (Bid) system that basically allows bidding using funds from the bidding pool.

With these funds, you can not only bid, but also use the pool to buy NFTs at the same time. While this sounds simple, it's actually a big (technical) unlock, because before Blur, the only way to bid was if you had to convert your ETH to WETH. If you want to buy an NFT, you have to convert it from WETH back to ETH. So this is a very annoying thing, both for experienced traders and newcomers to the market, because you have to use two different Tokens to buy these NFTs.

This is another inefficiency we've struggled with. Therefore, we have to build real-time infrastructure as well as protocol-level enhancements to make the transaction process smoother.

Mable：You explained earlier how you optimized and improved the entire trading experience. It was also mentioned that Blur is aimed at professional traders. Let's discuss Blend in depth: You have provided this new P2P permanent lending protocol Blend, what are the important new features?

Pacman：Combined with what I just mentioned, all the transactions that take place in the NFT market, Blur is doing billions of dollars in monthly transaction volume, all of which are actually spot transaction volume. Because compared to the Token trading market, the NFT infrastructure is still very primitive, and the Token trading infrastructure has had 10 years to really develop. For example, most of the Token trading volume in the market comes from Binance, its derivatives trading, margin, futures, options, etc. But the NFT market does not have such facilities and products.

Therefore, we judge that the next evolution is to improve the economic efficiency of NFT transactions, which means releasing the value held by NFT through lending. So we want to build a lending protocol for NFT. However, doing these things in the NFT market is a bit tricky. After all, it is different from Token trading. NFT is an irreplaceable Token, so you can't just copy and paste what works in the alternative Token market and apply it to NFT. infrastructure.

Therefore, we have to build a new protocol from scratch, and considering that NFT is an irreplaceable Token, more like a liquid market, then its lending protocol should be built on this basis. We then considered and designed this model with Paradigm's Dan Robinson, who was also one of the key designers of Uniswap V3.

Mable：What do you think borrowers or Blend users care about more?

Pacman：There are two aspects, what can borrowers unlock through Blend, and what can lenders get?

The first is the borrower. If you are familiar with the mainstream lending protocols on the market, such as Aave or Compound protocol, they are peer-to-peer protocols, and everyone is basically withdrawing/providing funds with the same loan terms. Usually an LTV (loan-to-value) of 50% -60%, the agreement must basically limit the maximum LTV. This is probably fine for borrowers, since this is a collection pattern. So users have to be more conservative, otherwise you have systemic risk.

If the price drops, the entire pool of portal protocols can be wiped out. So basically what this means is that in the peer-to-peer model, you actually have to have more conservative risk parameters because you have to have the same risk parameters for everyone, whereas in the peer-to-peer model, each lender is basically able to Risks, profiles and intolerances and knowledge of the market to originate loans, which basically means that you can actually get loans across all risk spectrums.

In the peer-to-peer model, you can have a higher LTV than the peer-to-peer pool model. When you look at the existing point-to-point models that we've seen, they're very confusing and I say this a lot because it's important to understand the big picture before Blend rolls out in order to understand why we designed Blend, the way it was designed .

All the peer-to-peer protocols we found were very borrower-unfriendly because each loan has a principal, interest rate, and fixed term. So every peer-to-peer lending agreement before Blur was a fixed-term agreement. So it's like you can take a loan for 30 days, 14 days, 7 days, but it's a fixed amount of time.

This means that the borrower needs to remember to actually repay the loan within a certain amount of time. If they forget, then their loan will be liquidated. This has happened multiple times. We’ve talked to people who mentioned they forgot to set their reminders and lost their NFTs because they forgot to set their reminders, even though they had enough money to pay back the borrowing.

This is difficult to manage not only for borrowers, but also for lenders, since they essentially have to lend out their NFTs for a fixed amount of time, and they basically cannot liquidate their positions. That means they have to be more conservative on the terms of the loan because they need to have the confidence that if you're going to offer a 30-day loan, you need to be confident that the collection price will basically stay high enough throughout the 30 days so that You can get your money back.

So basically this is the background in which Blend was designed. So what we've done is designed a peer-to-peer perpetual NFT loan protocol where each loan is actually provided by an individual lender, so it's not pooled. Each lender can choose risk parameters, but the loan does not have any term. Instead, lenders can basically call on their loan at any point in time, in which case the loan goes to an auction looking for another lender to step in.

I could talk about how exactly this works in the discussion, but basically what it does is it allows borrowers to get a loan without having to worry about specific terms and setting reminders and things like that. It also allows the borrower to get a higher LTV, it allows the lender to offer a higher LTV while reducing their risk because you don't have to set an LTV that you think is safe in 30 days or 14 days, you can set whatever you want Wanted LTV, you can rest easy knowing that when you want to get your loan back, you can get it back within 30 hours, which allows for a higher LTV without increasing your risk.

Mable：I was just trying to say that in the lending market of homogeneous Tokens, there are often some risks of failure in oracle mobilization. For now, it is not ideal to rely on NFT price push to calculate the liquidation line (only focus on the floor price). Blur's point-to-point design bypasses this link, and there is no risk of oracle failure. But I want to know that the borrower is someone who wants to buy now and pay later, which provides flexibility, and this is no problem. But it sounds like understanding and managing risk is very demanding for lenders. How do you solve these?

Pacman：Yes. While I generally don't mention this, Blend is actually an oracle-free protocol. Therefore, there is no risk of the price feed oracle failing, since the oracle is not even part of the system at all. That's another nice benefit, because if you look at those individual token-to-pool lending agreements, almost every hack that happens is due to a failure of the oracle. Blend just removes this part and doesn't make it part of the risk system.

For the lender, you're right, it does add more complexity to managing the position. One of the benefits of the cycle pool model is that it is very simple, you can put your NFT in the lending pool and it will be lent out. We note that in financialized markets, liquidity providers actually become more complex as the market grows.

A good example here is that Uniswap v2 is a very simple pool model if you actually look at token transactions written to DEXs. Everyone puts their tokens into the pool. What Uniswap v3 does actually amplifies this, instead of having a single pool where everyone can have different pool ranges, it basically allows you to have a decentralized pool of funds. This is much more complicated for liquidity providers, but it actually allows higher order liquidity providers to come in and provide a pool of funds with a wider range of liquidity.

Now Uniswap v3 is the dominant DEX model on Ethereum. It has become like this because this more expressive model is much better for users, demand side, and actually much more flexible for liquidity providers. So in every market, it starts with simple liquidity providers, but basically over time the liquidity providers, like almost all financial markets, end up getting more complex in order to be more creative and Diverse ways to chase yield.

Mable：I saw a tweet on Twitter that currently Blend can only use Azuki, Cryptopunk and Milady as collateral, is that true? Is this a deliberate risk control?

Pacman：Because Blend is a peer-to-peer model, Blend supports more collections than the normal peer-to-pool model. Because in the peer-to-pool model, there is a problem of systemic risk, the counterparty is not a pool, but all lenders who provide liquidity. The only thing the pool can do is basically force everyone's risk parameters to the same parameters.

In Blend, for example, you can mimic this process by having all lenders choose the same terms. But the problem with this approach is that because of the lack of diversity in the risk parameters, you face a higher level of systemic risk, whether in P2P pool models on the DeFi or NFT side, you always have to limit the markets they can enable . So if you look at AAVE or Compound, they only have about 10 markets.

And look at Binance, look at the marketplaces they allow borrowing on, and you'll see they have hundreds of different marketplaces to borrow from. It's because they can, it's not a pool model, right? They have market makers offering terms in all these different markets where we can have complete risk control in the terms of the loan.

Similar to Blend, it can enable many more collectibles than the normal peer-to-pool model. However, since this is a new protocol, we want to ensure there is sufficient borrowing liquidity for each of our collateralized NFT series. Therefore, we don't want to roll out 100 collectibles at once because that would spread liquidity.

This is a new system and we want people to be able to learn how it works so decided to start with only 3 different price points to let the market understand how the protocol works and build liquidity in it. We can then add and list new collections. The reason to start with such a small amount is to create a liquid and efficient market.

If there are yields available, borrowers will come in, liquidity will come in, and the market becomes efficient over time, it always tends to be efficient. However, if we start with 100 different collectibles, maybe the market will gradually become more efficient over the course of a month, but we don't want that.

We want the market to be immediately flooded with liquidity on day one. So that's why we started with only 3 collectibles to focus liquidity and attention. It's been a few days now and I think the debit side is slowly learning how the system works. Therefore, we will be adding new collections soon.

Mable：I have two questions. One is about liquidation, because it is a bear market and Gas fees are low, so there is no so-called liquidation failure or on-chain congestion. But in a bull market, this happens a lot. So have you considered moving to other EVM chains?

Pacman：certainly. As core contributors, we considered extending Blend to other chains, and we're definitely interested. But now we still feel that there are more opportunities on Ethereum, and there is still a lot of infrastructure to be developed. Once we've done that, we'll then move our explorations to other chains, but we want to make sure to grow Ethereum's NFT market as much as possible first. Because it's the largest NFT market, we still see a lot of low-hanging fruit for improvement. So we have to do that first.

Mable：As financial products in the NFT space become more complex, I think the opportunity to explore more MEV on the Ethereum chain will also increase. Another aspect is that the spot trading volume in the financial market only accounts for a small part. After Binance started doing perpetual contracts, they became the absolute leading platform. So do you see this happening, launching more other complex products related to NFT?

Pacman：If you study financial markets, you will find that each trillion-level financial market has grown through more and more advanced financialization and specialization. This enables large institutional investors to enter the market, thereby improving liquidity, providing better prices to end users, and promoting the growth of the market.

If you look at Token trading, we have gradually evolved from spot trading to margin trading, options, futures, derivatives and other trading methods. With the development of infrastructure and the strengthening of financialization, the Token market has developed rapidly. We see that NFT is also experiencing such a trend. The difference is that NFT is a very unique asset. They are not fungible tokens, each NFT is unique. Although there is a certain degree of fungibility in the bottom layer and some medium and rare NFTs, they are ultimately non-homogeneous assets.

This means that although we can get inspiration from the development of the token market and the infrastructure, we cannot simply copy and paste. For example, for lending, we couldn't just replicate a protocol like AAVE or Compound, we had to design a new protocol from scratch with Dan Robinson. When it comes to other advanced financial infrastructure, we can expand the NFT market by building this advanced financial infrastructure, so as to achieve more liquidity, more participants to enter, and better user experience. But it has to be done in a way that is NFT localized.

I think that's why you're seeing, even with spot trading that started off on the Blur exchange, every major crypto exchange, like Binance, OKX, Coinbase, etc., launched their own NFT marketplace, but none really took off. Because NFT is essentially a very different asset class from Token. You can draw inspiration from these ideas, but you can't directly copy the methods that work in the Token world to the NFT world.

So we're very excited to explore this area. But I think this also requires more innovation. If you just copy some ideas from the token world directly into the NFT world, it will not be successful. It will only work if some new NFT localization is invented.

Mable：Very encouraging, now switch gears and talk about the governance of the Blur token. What have BLUR token holders done with their governance rights, specifically contributing to the Blend protocol?

Pacman：When we designed this token, one of the key factors we considered was that Web 3 would allow us to provide end users of the protocol with control and value accumulation over the network. At the end of the day, a marketplace is only valuable in the presence of the network that develops around it, not because of the infrastructure. In Web2, there is a clear distinction between the source of value and the owner of the market, and the value coming from the market is only the network itself.

One of the really striking things when we look at Web3 is that with the basic building blocks available in Web3, a system can be built. We can conveniently provide infrastructure for network participants (those who are actually creating network value), and finally capture the value generated by the network in the form of Token and feed it back to the network itself.

Therefore, when we designed Blur, we wanted to ensure that the BLUR token controls the growth and distribution of value on the network. Specifically, the BLUR token can be used as a fee to launch the Blur marketplace and the Blend protocol.

For Blend, the BLUR token basically controls the value growth of the protocol, and also controls the distribution, with a large BLUR token vault. The treasury grant can only be made through the votes of BLUR holders, which is the key to giving value to the entire network, because as long as there is a Token that allows you to control the value growth and distribution of the network, it basically gives value to anything. It's like an ability to capture financial growth, protocol growth that can only happen through decentralized adoption by the community. That's what we thought about Blur.

As we examine the NFT market, the BLUR token fulfills another key function. If you are an investor, an institution, if you want to gain exposure in the NFT market, before Blur, you can't think of any way, because the NFT liquidity is not enough for you to buy a $100 million NFT. The only other way is to get private equity in Opensea, but that's very difficult for the vast majority of people.

Now with Blur, the vast majority of NFT market volume is through the Blur marketplace protocol, and now the vast majority of NFT lending market volume is also through Blur. Basically, now anyone can gain exposure to the growth of the NFT market through BLUR tokens, not only the overall growth of the NFT market, but also the exposure to the fastest growing segments of the NFT market, such as the financialization and professionalization of NFTs Market segments.

Like the token market, this institutional advanced trader market is the fastest growing and one of the most valuable segments. Therefore, the role of the BLUR token is to make growth and exposure available to anyone.

Mable：What you just said reminds me of the new understanding of the "fat protocol" theory (a famous theme paper published by USV in 2017) in the dimension of mass application. Many people may think that the "fat protocol" theory cannot be applied to the mass application level. But I think the development of Blur successfully demonstrates how the growth of a mass-adopted application-layer protocol can benefit from decentralization. I find this very interesting.

Pacman：In fact, I think Blur is an evolution or modification of protocol theory. Blur is a manifestation of the "Fat Token" theory, because the Blur market agreement and the Blur lending agreement are actually two different agreements. They have independent contracts, but they are all controlled by the same Token. The implication is that they are all related to the growth of the NFT industry. So it doesn't matter whether you believe in the growth of NFT spot adoption or you believe in the growth of NFT financialization, since $BLUR controls the value accumulation of these two parts, it is basically like a token that covers the growth of the NFT market. Exponential exposure for each domain.

Mable：I have one final question. At present, Blur's user interaction and experience are more suitable for trading NFTs that are launched for the community. Do you think this interface is also suitable for asset transactions in games and applications? When it comes to games or applications, it is more likely to think of built-in, transactions that match the theme and situation of the game, such as STEPN or some other games.

Pacman：I think this interface is absolutely fine. When we think about Blur, I think the financial industry really made a good case that we started looking at the professional traders and the crypto-native crowd. Expand products and protocols to broader segments of the market over time. So now there is a very good financial application, there is also a very good financial retail website, and there will be transactions, perpetual transactions, etc. in the future.

When we think about Blur, we definitely focus on the NFT-native crowd, but as core contributors, we're always focused on extending the product and building on what Blur already has.

When you think about the current interface, the final interface is really aimed at advanced traders of large-scale NFTs, so any kind of NFT, whether it is a PFP or an in-game asset, as long as it is an asset that has an image or some kind of visual representation and characteristics. Just right for trading on Blur. However, there are some NFTs that have very specific unique properties, such as ENS names. A name doesn't have a visual component, it's just words, so it's a very different type of asset.

For this particular asset, Blur isn't particularly well suited. For a one-for-one piece of art, it's a little different because you don't actually trade it, but buy it and hold it for a long-term. So this asset type is not very good. However, any asset that has visual characteristics and is actively traded is a good fit for trading on Blur.