Arcade, a de-fi lending platform for NFT, announced that someone took a loan on its platform, using two Rolex watches as collateral. The announcement said that the use of physical goods for on-chain transactions is opening up a new market for the decentralized finance space.
According to the physically backed NFT loan protocol platform, the transaction saw a borrower commit two Rolex watches for a loan of $14,500 at 12% APR. It added that the Rolexes were placed in an escrow service pending payment when the owner paid up on their loan.
Using real-world luxury goods on-chain
The initial statement announcing the deal said,
A clear use case for NFTs
An advisor at Arcade, Cirrhus, explained further that with the use of NFT-backed loans, users of the platform can tap into the global liquidity provided by Arcade, raising the argument that it is a better deal than taking their goods to loan sharks.
The Rolexes were sent to an escrow company, which then sent back NFTs representing ownership of the watches. The borrower can then use those NFTs to tap into global liquidity rather than take a predatory loan at their local pawn shop. If they default? The lender can use the NFTs to redeem the watches. One of the most obvious and easy-to-understand use cases of NFTs.
On June 14, Arcade announced that it had reached the $100 million milestone in loan settlements. The platform said that it has continued to make inroads into the NFT-backed lending market.
Why use NFT lending?
@furiousanger, A tweeter wanted to understand how NFT-backed lending works. He asked,
“So I send my watches to a middleman. Wait for them to appraise and offer a loan. Once I agree, they’ll make NFTs after the fact. Remind me what problem this solves when I can just get a loan at any normal high-end pawn broker who will drive to my house?”
Global liquidity better rates than local liquidity
In his response, Cirrhus said,
“The middleman doesn’t offer a loan; they custody the asset and mint you the NFT.” You then use the NFT to tap into global liquidity (you can borrow from anyone) instead of local liquidity at your pawnshop. Global liquidity will eventually always get you better rates than local liquidity.”
With the crypto market in bearish mode, some cryptocurrency enthusiasts are using physical goods they own to borrow from NFT-lending De-Fi protocols to buy what they presume is the bottom price for several cryptocurrencies.