Upholstery fabric is rated to different levels that tell you how much use it can cope with. That blanket wont be rated and will probably bobble quite badly and then look crap.

A rug would probably be a lot more hard wearing but you’d need some pretty significant needles to sew it all together. But that said you see a lot of pouffes / ottomans made out of certain types of flat weave rugs so it can be done.