The Latest NFT Trend: Taking Out Loans on Rolexes

Rolex GMT-Master II

Blockchain technology has already changed much about the way people interact. But some innovators are hoping to push the technology’s limits even further: they’re betting the blockchain can transform the world into one giant pawn shop., a DeFi protocol for NFT lending, has begun facilitating loans between strangers that use luxury watches as collateral, and employ NFTs to guarantee those loans’ terms.

In the past few weeks, Arcade users have lent three Rolexes to anonymous lenders for cash—a Daytona, for $20,000 at 15% APR; a GMT-Master II, for $14,500 at 12% APR; and an Explorer for $20,000 at 12% APR. The owner of the Daytona and the Explorer also lent a Patek Philippe watch for $35,000 at 12% APR. The loans’ durations range from 56 to 90 days.

Coolest thing I saw on chain this week was a lender giving a stranger a $35,000 loan at 12% APR using a Patek Phillipe as collateral

Borrower sent the watch to an escrow company who then sent back an NFT that represents ownership of the watch.

Enabling the trade of such high-value physical assets for cash between online addresses is a chain of custody involving both third parties and NFTs. Borrowers send their watches to 4K, an on-chain escrow protocol, and receive an NFT representing the timepiece’s ownership in return. Borrowers then list those NFTs on Arcade, waiting for the best loan offer.

Once a borrower and lender are matched on Arcade, the watch-representing NFT is sent to an escrow wallet. The only way to receive the watch back from 4K is to burn the NFT; at the end of a loan’s duration, it will either be returned to the borrower after the loan is repaid, or handed over to the lender if the borrower fades away into the shadows of the internet.

Remarkably, the entire loan process can be carried out without either party knowing the other’s identity—a benefit that Arcade’s leadership believes could greatly increase the global pool of potential borrowers and lenders looking to leverage physical items.

“Borrowers can tap into global liquidity on permissionless peer-to-peer infrastructure, likely at much better rates than a pawn shop,” Arcade founder and CEO Gabe Frank told Decrypt.

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Photo: Rolex

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