An unidentified cryptocurrency user has made use of an NFT (non-fungible token) as collateral to secure a loan worth $1.1 million from a stranger online. The deal was facilitated on Arcade, a DeFi (decentralized finance) platform that enables cryptocurrency loans. Both the borrower and lender in this transaction are anonymous.
The annual percentage rate (APR) of the loan was set at 40%, with a repayment period of 60 days. The borrower is therefore expected to repay a sum of $1.172 million by November 1, 2023. Notably, the collateral provided for the loan was not a traditional asset, as one would expect in conventional finance, but a collection of Supreme t-shirts, illustrating the possibilities of collateral within the cryptocurrency world.
This collection consisted of all t-shirt designs released by the streetwear brand from 1994 to 2020, deemed Supreme’s Box Logo Collection. In 2020, auction house Christie’s valued this collection, comprising 253 t-shirts, at a hefty $2 million.
Before the loan, the t-shirts were sent to the escrow company 4K to verify their authenticity, following which an NFT was issued to the borrower, who was thereby confirmed as the owner of the t-shirts. In the event of the borrower defaulting on the loan, the lender has the right to use the NFT to ‘redeem’ the t-shirts.
This isn’t the first such instance where NFTs have enabled such transactions. Earlier in July, a $35,000 loan was secured by an anonymous borrower using a Patek Philippe watch, valued at $200,000, as collateral. The NFT issued in that case also certified the watch’s authenticity. Apart from luxury watches and designer t-shirts, rare Pokémon cards have also been reportedly used as collateral.
The use of NFTs as a form of legal ownership could be a significant step towards viewing them as something more than digital curiosities with steep price tags. However, it does highlight potential issues such as defaulting borrowers disappearing with the money and valuable goods. In such instances, blockchain trackers could possibly assist law enforcement in identifying the borrower’s cryptocurrency wallet address and geographical location. This hasn’t happened yet, but it’s a consideration when an NFT serves as collateral in future transactions.
