Blockchain technology has already changed the way people interact with each other. But some innovators are hoping to push the boundaries of the technology even further: they’re betting that blockchain could turn the world into one giant pawnshop.

Arcade.xyz, DeFi’s protocol for NFT lending, has begun facilitating loans between strangers, using high-end watches as collateral and applying NFT to enforce the terms of the loans.

In the past few weeks, Arcade users have loaned three Rolex models – 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 – to anonymous lenders for cash. The owner of the Daytona and Explorer also borrowed a Patek Philippe watch for $35k at 12% APR. Loan terms range from 56 to 90 days.

The exchange of such high-value tangible items for cash between internet addresses utilizes a chain of custody involving both third parties and NFT. Borrowers send their watches to 4K – an on-chain escrow protocol – and receive in return an NFT confirming ownership of the watch. Borrowers then submit these NFTs to Arcade and wait for the best loan offer.

Once the borrower and lender are found on Arcade, the NFT representing the watch is sent to the escrow wallet. The only way to get the watch back from 4K is to burn the NFT; at the end of the loan term, it is either returned to the borrower after the loan is repaid or given to the lender if the borrower disappears into the shadows of the Internet.

Notably, the entire loan process can be done without knowledge of the borrower’s identity, which Arcade executives believe could significantly increase the global pool of potential borrowers and lenders willing to use physical items.

Borrowers can access global liquidity on a peer-to-peer infrastructure without any authorization and likely at much more favorable rates than a pawn shop.

Borrowing against physical luxury goods is a new twist on the NFT lending phenomenon, which has generated over $2.5 billion in lending to date. Typically, users borrow against high-value NFTs such as CryptoPunks cryptocurrencies and Bored Ape Yacht Club profile pictures (PFPs).

According to Dune’s dashboard, Arcade has processed about $100 million in NFT-based loans to date. Blend’s flagship NFT-market leading platform Blur was launched in May and has quickly captured the market thanks to trade incentives: More than $1.3 billion in NFT loans have been issued in just two months.

Arcade has already issued concept loans secured by tokenized real estate, debt positions and apparel, such as 9dcc T-shirts sold on the chain by NFT entrepreneur gmoney.

The diamond cuff for the Apple Watch has been verified as authentic by NFT

4K has now introduced more than 30 such watches through Ethereum NFT.

According to 4K founder Richard Lee, in order to get a watch back from 4K after the loan is complete, the user will need to burn the NFT of their watch and provide a shipping address as well as additional identifying information depending on the level of shipping insurance.

Some elements of the physical realm still do not seem to lend themselves to decentralization.