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Borrowing high-end watches is no longer limited to pawnshops! Patek Philippe luxury watch combined with NFT, successfully borrowed $35,000.

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Borrowing high-end watches is no longer limited to pawnshops! Patek Philippe luxury watch combined with NFT, successfully borrowed $35,000.

NFT influencer Cirrus shared an interesting real-world asset (RWA) application case on Twitter today. A user actually mortgaged their Patek Philippe watch in the form of an NFT to secure a loan, successfully borrowing $35,000. How did the process unfold, and what potential risks are involved?

Novel RWA Use Case! Patek Philippe Watch Used as Collateral for Loan

According to Cirrus on Twitter, the coolest thing they saw this week was a lender offering a loan of $35,000 to a stranger at an annual interest rate of 12%, with the collateral being a Patek Philippe watch.

Although the collateral is a watch, it is in the form of an NFT. After the borrower hands over the watch to the custodian 4K, 4K will transfer the NFT representing ownership of the watch to the borrower.

The borrower then lists the watch NFT on the lending platform Arcade, and upon accepting an offer from a lender, completes the loan transaction.

Note: The Patek Philippe watch model is 5960/01G, with an original price of approximately $67,000. Based on the original price, the loan-to-value ratio is about 52%.

Currently, the watch NFT is transferred to a custodial wallet for safekeeping until the end of the loan term or repayment by the borrower. The only way to retrieve the watch is by destroying the NFT. Therefore, if the borrower defaults, the lender can claim the watch.

Cirrus stated that in this lending model, the lender doesn't even need to know who the borrower is, only that they are the legitimate owner of the watch.

Some netizens pointed out that this operation model is similar to a pawnshop. However, Cirrus believes that there is a difference in liquidity, as a pawnshop can only access local liquidity, whereas NFT lending can access global liquidity, reducing the borrower's borrowing costs.

"This is just the tip of the iceberg in using NFTs to prove ownership of real-world assets (RWA)," Cirrus said.

Note: Cirrus is currently an advisor to the Arcade protocol.

Introduction to Custodian 4K

4K is a decentralized protocol aimed at bringing real-world assets onto the blockchain. Users can send their valuable assets to 4K to receive NFTs, and 4K is responsible for custody and appraisal services. A wide variety of items can be minted, such as player cards, luxury clothing, designer bags, sneakers, and even Pokémon cards.

The mentioned watch is classified under the 4K Watches project, where a total of 33 luxury watches from Rolex, Omega, AP, and others are being held and circulated on-chain in NFT form, available for purchase on the NFT secondary market.

Additionally, other NFTs minted through 4K's services are seeking collateral loans on Arcade.

Pokémon Charizard card used as collateral on Arcade

Special RWA Applications Come with Higher Risks

Liu Feng, founder of ChainNews, also shared his thoughts on the RWA use case provided by 4K and Arcade.

Liu Feng acknowledged that some may find the way of custodial watches too centralized and risky. However, he believes that its operation is similar to other on-chain U.S. Treasury products, which also require centralized institutions for custody, and the risk may not necessarily be reduced just because it is a U.S. Treasury product.

Furthermore, Yang Mindao, founder of dForce, stated that Treasury products are standardized, and custody and regulatory risks are more manageable. As for non-standardized products, they are rare and unique assets. In the early stages of RWA applications, users can only rely on their own luck.

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