Patek Philippe Watch Used As Collateral In A $35,000 DeFi Loan

On July 10, a lender prolonged a $35,000 mortgage to a person utilizing a Patek Philippe watch as collateral through Arcade, a decentralized lending platform, with the watch being verified and held in escrow by the 4K Protocol. Patek Philippe watches are thought of a number of the most precious watches on the planet, with some fetching tens of millions of {dollars} at auctions. 

Patek Philippe Watch As Collateral

The borrower engaged an escrow firm to securely retailer the watch, which subsequently issued a singular non-fungible token (NFT) representing the possession of the timepiece. This NFT was listed on the Arcade platform, the place lenders might submit their mortgage gives. After reviewing the listed choices, the borrower took a $35,000 mortgage from one of many listed gives.

To make sure the safety of the transaction, the NFT representing the watch possession was transferred to an escrow pockets. The NFT will likely be held within the pockets till the mortgage is absolutely repaid to safe the lender’s curiosity.

Alternatively, if there’s a default, the lender will declare the Patek Philippe watch by burning the related NFT. This mechanism ensures that the lender turns into the lawful proprietor of the collateralized watch.

As transaction information reveals, the involvement of an escrow agency, good contracts, and NFT has simplified the lending course of. Most significantly, the identities of the borrower, who owns the coveted watch, and the lender stay non-public. The trustless nature of crypto transactions means transactors don’t should reveal their identities in the event that they switch worth through non-custodial wallets like MetaMask.

Falling Ground Costs In NFT

Though the involvement of NFTs in DeFi loans has opened up liquidity, permitting customers to faucet into world liquidity that may be provided at any time of the day, there are cautions.

As an illustration, whereas the notable transaction highlights the potential of decentralized finance (DeFi) and the way NFTs can be utilized as collateral in loans, it ought to be famous that NFTs are unstable like mainstream cryptocurrencies corresponding to Bitcoin or Ethereum, as an illustration. 

In latest months, the worth of well-liked NFTs corresponding to Bored Ape Yacht Membership (BAYC) and CryptoPunks has been free-falling following the crypto winter that spilled over from 2022. Within the NFT trade, the ground value is the bottom value of an NFT in a given assortment; for instance, Azuki is at present listed on the market on a given market, like OpenSea or Rarible.

OpenSea statistics present that the ground costs of BAYC NFTs have been falling, dropping by over 90% from $600,000 in 2021 to as little as 30 ETH as of early July 2023. At this tempo, although BAYCs and different well-liked NFTs can be utilized to safe loans from prepared lenders, the danger of asset value dumping could be deterrence, impacting liquidity. 

Characteristic picture from Canva, Chart from TradingView