Patek Philippe Watches Get Loans as Collateral: A Combination of NFTs and DeFi

Compile: Blockchain Knight

On July 10, a lender provided a $35,000 loan via the decentralized lending platform Arcade to an individual using a Patek Philippe watch as collateral**, secured by 4K Protocol. Verification and Escrow.

Patek Philippe watches are considered to be some of the most valuable watches in the world, with some even fetching millions of dollars at auction.

The borrower entrusts an escrow company to securely store the watch, and the company issues an NFT (non-fungible token) representing ownership of the watch.

This NFT is listed on the Arcade platform where interested lenders can submit their loan offers. After reviewing the options listed, the borrower accepted the loan offer of $35,000.

On the one hand, in order to ensure the security of the transaction and the interest of the lender, the NFT representing the ownership of the watch is transferred to an escrow wallet until the loan is repaid.

On the other hand, in the event of a default, the lender will claim the Patek Philippe watch by destroying the relevant NFT, this mechanism ensures that the lender becomes the legal owner of the mortgaged watch.

As transaction data shows, the participation of escrow companies, smart contracts, and NFTs simplifies the lending process. Most importantly, the identities of borrowers and lenders remain confidential.

The trustless nature of this exchange means that traders do not have to reveal their identities if they transfer value through a non-custodial wallet such as MetaMask.

Although NFT increases the liquidity of DeFi (decentralized finance) loans, enabling users to enjoy global liquidity provided around the clock, caution is still required during transactions.

For example, while this headline-grabbing deal highlights the potential of DeFi and how NFTs can be used as collateral for loans, it should be noted that NFTs are just as volatile as mainstream currencies in the crypto space like BTC and ETH sex.

Following the "crypto winter" of 2022 and extending into early 2023, the prices of popular NFTs such as Boring Ape and CryptoPunks have been falling.

In the NFT industry, a floor price is the lowest price at which an NFT in a given collection will be sold on a marketplace such as OpenSea or Rarible.

OpenSea statistics show that the base price of Boring Ape NFT has been falling, from $600,000 in 2021 to 30 ETH in early July 2023.

At this rate, while Boring Ape and other popular NFTs can be used to take out loans from lenders willing to lend funds,** a plunging asset price could impact liquidity**.