In a recent development, a collector of nonfungible tokens (NFTs) shared an intriguing story about how a decentralized finance (DeFi) loan was secured using a luxury watch, facilitated by an NFT representing the asset.
The incident took place on July 11 and was revealed by CirrusNFT, a pseudonymous advisor to a DeFi project.
According to CirrusNFT, a user managed to borrow $35,000 from another individual by utilizing an NFT that symbolized a physical item as collateral for the loan.
The borrower sent a prestigious Patek Philippe luxury watch to 4K Protocol, an escrow firm specializing in NFTs backed by tangible assets. In return, the company issued an NFT that granted ownership rights to the watch.
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To proceed, the NFT was listed on the DeFi lending platform known as Arcade. Once listed, lenders submitted their loan offers to the borrower, who then accepted the most favorable one.
Subsequently, the NFT was transferred to an escrow wallet, where it would remain until the loan was repaid in full or in the event of a default.
In the unfortunate case of non-payment, the NFT would be transferred to the lender, who could then claim the watch by destroying the NFT.
CirrusNFT highlighted that this process enables lending and borrowing while ensuring complete anonymity.
Participants are not required to disclose their identities to one another during the transaction.
Furthermore, the executive expressed the belief that this lending system provides individuals with access to global liquidity, potentially leading to more competitive interest rates.
The Web3 lending process, which incorporates NFTs as collateral, received positive feedback from the community.
A Twitter user shared their enthusiasm, stating that their father found the story fascinating. However, not everyone welcomed this new approach to lending and borrowing.
Critics argue that the system is centralized and that the inclusion of NFTs is unnecessary in certain cases.
While opinions vary, it is evident that the use of NFTs as collateral for loans presents a novel and intriguing concept within the world of DeFi.
It remains to be seen how this approach will evolve and whether it will gain wider adoption in the financial ecosystem.
