De-Fi borrower uses luxury watch-backed NFT as collateral for a loan

An enthusiast of nonfungible tokens (NFTs) recently shared an intriguing story involving a decentralized finance (DeFi) loan that used a luxury watch as collateral, facilitated by an NFT representing the valuable item.

On July 11, an advisor to a pseudonymous DeFi project, known as CirrusNFT, detailed how one user managed to secure a $35,000 loan from another user by utilizing an NFT that symbolized the physical luxury watch as collateral.

The process unfolded as follows: The borrower sent a Patek Philippe luxury watch to 4K Protocol, an escrow firm specializing in NFTs backed by physical assets. In return, the company issued an NFT representing ownership of the watch.

Subsequently, the NFT was listed on Arcade, a DeFi lending protocol. Interested lenders submitted their loan offers to the borrower, who accepted the most favorable proposal available. Following this, the NFT was transferred to an escrow wallet, where it would remain until the loan was fully repaid or in the event of default. In case of non-payment, the NFT would be awarded to the lender, who could then redeem it to claim the actual watch.

CirrusNFT emphasized the anonymity aspect of this lending process, highlighting that lenders and borrowers need not disclose their identities to each other during the transaction. Additionally, the advisor believes that this approach grants individuals access to global liquidity, potentially resulting in more competitive interest rates.

One community member took to Twitter, expressing their father's interest in the Web3 lending mechanism, deeming it "interesting."

While some embraced this novel approach to borrowing and lending, others raised concerns about centralization and the unnecessary integration of NFTs into certain domains.