On July 10, a lender extended Loan of $35,000 to an individual using a Patek Philippe watch as collateral via Arcade, a decentralized lending platform, with the watch verified and held in an escrow account by 4K protocol. Patek Philippe watches are some of the most valuable watches in the world, with some of them fetching millions of dollars at auctions.
Patek Philippe watch as collateral
The borrower engaged an escrow company to securely store the watch, who subsequently issued a unique, non-fungible token (NFT) representing ownership of the watch. This NFT has been listed on the Arcade platform, where interested lenders can submit their loan offers. After reviewing the options listed, the borrower obtained a $35,000 loan from one of the listed offers.
To ensure the security of the transaction, the NFT representing ownership of the watch has been moved to the escrow wallet. The NFT will be held in the wallet until the loan is repaid in full to secure interest for the lender.
On the other hand, if there is a default, the lender will claim the Patek Philippe watch by burning the associated NFT. This mechanism ensures that the lender becomes the rightful owner of the secured watch.
As transaction data reveals, escrow company involvement, smart contracts, and NFTs have simplified the lending process. Most importantly, the identities of the borrower, who owns the desired watch, and the lender remain private. The trustless nature of cryptocurrencies means that dealers do not have to reveal their identities if they transfer value via non-custodial wallets such as MetaMask.
Falling floor prices in NFT
Although the participation of NFTs in DeFi loans has unlocked liquidity, allowing users to take advantage of the global liquidity that can be provided at any time of the day, there are caveats.
For example, while the high-profile transaction highlights the potential of decentralized finance (DeFi) and how NFTs can be used as collateral in loans, it should be noted that NFTs are just as volatile as mainstream cryptocurrencies like Bitcoin or Ethereum, for example.
In recent months, popular NFTs such as Bored Ape Yacht Club (BAYC) and CryptoPunks have plummeted in value in the wake of the crypto winter that stretched from 2022. In the NFT industry, the lowest price is the lowest NFT in a given pool; For example, Azuki is currently for sale in a specific market, such as OpenSea or Rarible.
open c statistics It showed that the minimum prices for BAYC NFTs are falling, dropping more than 90% from $600,000 in 2021 to as much as 30 ETH as of early July 2023. At this pace, though, BAYC and other popular NFTs can be used. To secure loans from willing lenders, the risk of asset price dumping can act as a deterrent, affecting liquidity.
Featured image from Canva, chart from TradingView