2023-07-21clock3 minutes

Are NFTs a brand-new way for a loan?

An NFT enthusiast recently recounted an intriguing tale about a DeFi loan that utilized a luxury watch as collateral. This fascinating financial arrangement was made possible through an NFT that represented the valuable asset.

Here we'll delve into the process through which a user successfully secured a $35,000 loan from another user, all thanks to the ingenious use of an NFT. The NFT served as a digital representation of a physical item, cleverly utilized as collateral for the loan.

To facilitate the transaction, the user took a decisive step by entrusting their valuable Patek Phillipe luxury watch to 4K Protocol, a reliable escrow firm specializing in NFTs linked to physical items. In exchange for the watch, the company provided an NFT that unequivocally represented ownership of the timepiece.

With the NFT representing the luxury watch now in hand, the user proceeded to list it on the DeFi lending platform, Arcade. Excited lenders swiftly presented their loan proposals to the borrower, who meticulously evaluated each offer. After careful consideration, the user opted for the most favorable loan offer available.

Once the decision was made, the NFT found its way to an escrow wallet, where it would reside until the loan was fully repaid or, in the unfortunate event of a default by the borrower. In such a case, ownership of the NFT would be transferred to the lender as compensation for the unpaid loan.

One of the remarkable aspects of this process is the complete anonymity it offers to both lenders and borrowers. Throughout the entire lending and borrowing journey, individuals engaged in this DeFi platform are not required to disclose their real names or identities to each other.

Step-by-Step Guide from NFT to Loan

  • The borrower had a desire to secure a loan and sought to utilize a prestigious Patek Phillipe luxury watch as collateral for the transaction.
  • To proceed with the loan request, the borrower took the necessary steps and sent the Patek Phillipe luxury watch to a reputable escrow company.
  • In exchange for the luxury watch, the escrow company issued an NFT to the borrower, signifying and confirming their ownership of the valuable timepiece.
  • With the NFT representing ownership of the luxury watch now in the borrower's possession, they proceeded to list it on a DeFi lending protocol to get a loan
  • Borrower met with on accepting a $35 000 loan at a 12% Annual Percentage Rate (APR)
  • To ensure the terms of the loan were met and executed securely, the NFT was safely transferred to an escrow wallet.
  • If the borrower defaulted on the loan, the lender would rightfully receive ownership of the NFT, which inherently represented ownership of the luxury watch.

Summary: NFT and Loans

While traditional loans against specific items are readily available through banks and financial institutions, the concept of NFT loans is a relatively new and exciting trend in the financial world.

The case proves that NFTs are not just short-lived hype or representatives of a particular art form.
They have a much bigger role and can be successfully used both in new financial markets and in economic activities that are already well known to us.

NFT loans offer a host of compelling advantages, making them an attractive option for borrowers and lenders alike. One of the key benefits is the speed at which these transactions can be executed.