An anonymous cryptocurrency user took out a US$1.1 million (AU$1.7 million) loan from an online stranger, and used an NFT as collateral.
There’s a lot to unpack here – let’s get started.
Borrowing millions from strangers
The deal was completed on Arcadea DeFi platform that facilitates cryptocurrency lending, was first noticed by X user Who was browsing blockchain records online.
According to the Arcade website Records on the chainunknown borrower Loaned $1.1 million (A$1.7 million) anonymously Lender. The annual percentage rate (APR) for this loan was 40% and repayment must be made within 60 days. Therefore, the borrower must return US$1.172 million (A$1.82 million) by 1 November 2023.
If this loan were to be facilitated by a traditional lender, a valuable asset would have to be put on the table as collateral – such as Gollum’s valuable assets. However, we are in the world of cryptocurrencies and dealing with magical internet money. Therefore, anything of value can be accepted. In this case, the borrower used his collection of Supreme T-shirts as collateral instead.
Supreme’s t-shirts aren’t any ordinary t-shirts either – they’re iconic Supreme t-shirts Fund logo setwhich contains every t-shirt design released by the streetwear brand – from 1994 to 2020. With 253 t-shirts, Supreme Fund logo set It was valued at US$2 million (AU$3.1 million) by the auction house ChristyIn 2020.
Top t-shirts have turned into NFTs
Supreme shirts were first sent to an escrow company called 4K To ensure its authenticity. The company then issued an NFT to the borrower (the shirt owner) to confirm the authenticity and legal ownership of the shirts. The US$1.1 million (A$1.7 million) loan was then processed.
If the borrower does not repay their loan on time, that is, if they default, the lender can now use the NFT as evidence to “redeem” the physical Supreme shirts. Therefore, the lender will now own the top fund logo set worth US$2 million (A$3.1 million).
NFTs of the Supreme represent ownership of real assets. NFTs are powered by blockchain technology, which maintains immutable transaction records online. So, in this case, it also serves as a legal product that gives the lender the right to repay in case the borrower defaults on the loan.
Maybe NFTs have a use case after all
This isn’t the first time someone has used NFTs as collateral for an expensive purchase. in JulyAn anonymous borrower obtained a loan of US$35,000 (AU$54,200) using Patek Philippe Watch as collateral.
Patek Philippe watches are considered among the most expensive luxury watches in the world. It costs more than a Rolex watch, and Less than a million Made since 1839.
In this case, the value of the Patek Philippe watch used as collateral was US$200,000 (AU$309,000), and an NFT attesting to the watch’s authenticity was issued to the borrower, who was also the owner of the watch.
On X, people in the NFT community have also come forward and He claimed They saw rare Pokémon cards listed in the Arcade as collateral.
“The whole reason I got into NFTs is because it’s very difficult to catalog my physical art collection… Ebay vault He’s basically on top of this whole thing,” He said One X user.
A small section of the NFT community has long viewed NFTs as little more than high-priced JPEGs. Now, as people start to treat NFTs as a legal representation of ownership rather than a speculative game, maybe JPEGs of unconventional artworks have a use in real life after all.
But what if…?
Considering that almost all cryptocurrency transactions take place on the internet, what happens if the borrower defaults on the loan and disappears to the south of France with the money? and Top shirts?
in Traditional financingThe lender – a bank, for example – will have the legal right to seize the collateral. It could be a home, furniture, electronics – you name it.
In decentralized finance (DeFi), online anonymity will be a challenge if someone goes after a borrower and seizes their assets. However, blockchain trackers can work with law enforcement to track a borrower’s cryptocurrency wallet address and geographic location.
Blockchain tracking companies (like Chainalysis) have partnered with authorities like the FBI to solve financial crimes. So, the solution here will not be very different compared to traditional financing.
But so far, there are no reports yet of cases where a borrower with an NFT as collateral defaults on the loan.