Arcade Uses Luxury Watch-backed NFT as Collateral for Loan

A nonfungible token (NFT) collector described how a decentralized finance (DeFi) loan was secured by a luxury watch and facilitated by a nonfungible token (NFT) representing the asset.

On July 11, fictitious DeFi project adviser CirrusNFT described how a user could borrow $35,000 from another user using an NFT representing a physical item as collateral.

A user reportedly sent a Patek Phillipe luxury watch to 4K Protocol, an escrow company that handles NFTs backed by physical items, according to the executive. The company then returned an NFT representing the watch’s ownership.

The NFT was then included in DeFi’s Arcade lending protocol. The lenders pitched their offers to the borrower after listing the item.

The user then accepted the best available loan offer. The NFT was then transferred to an escrow wallet, remaining there until the loan was fully repaid or the borrower defaulted.

If the borrower fails to repay the loan, the lender will receive the NFT. The card can then be burned to recover the watch.

CirrusNFT explained that this process allows users to lend and borrow in complete anonymity. There is no requirement for lenders and borrowers to submit their names to each other to complete the process.

In addition, the executive believes that this provides greater access to global liquidity, which may result in more competitive interest rates.

A community member tweeted that their father found the Web3 lending process “interesting.”

Others believe that the new method of lending and borrowing is centralized and adds non-financial transactions where they are unnecessary.