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DeFi Borrower Leverages Luxury Watch-Backed NFT as Loan Collateral
A keen nonfungible token (NFT) enthusiast recently revealed how he used an NFT, which represented a high-end wristwatch, as collateral for securing a decentralized finance (DeFi) loan. DeFi project consultant CirrusNFT on July 11 detailed the fascinating process a borrower undertook to procure $35,000 from a fellow user, with an NFT standing as security for the credit.
A Watch’s Journey from Physical Asset to a DeFi Tool
The loan applicant sent a pricey Patek Phillipe wristwatch to 4K Protocol, an intermediary company that specializes in tokenizing physical items into NFTs. Upon receiving the watch, 4K Protocol generated and returned an NFT representing ownership to the sender, thereby digitalizing a tangible asset.
Lending Process that Ensures Anonymity and Encourages Competitive Rates
The borrower subsequently listed the said NFT on the Arcade, a leading DeFi lending protocol. Potential lenders proposed their loan offers for the NFT-listed asset, from which the borrower selected the most attractive deal. The borrowed sum followed this acceptance, with the NFT held in an escrow wallet till the completion of repayment or possible default.
If the borrower defaults, the lender becomes the NFT owner and could then burn it to reclaim the watch. As CirrusNFT pointed out, it is not mandatory for parties involved to disclose their identities, ensuring complete anonymity. Besides, the approach could open up access to more global liquidity, possibly leading to more competitive lending rates.
A Mixed Bag of Reactions to the DeFi Approach
A section of the community commended the innovative lending method, with a user even sharing how the story attracted his father's attention, who found it compelling. Conversely, others criticized the approach, accusing it of unnecessary centralization and misuse of NFTs.
