It’s an unfortunate reality that crypto lenders are under scrutiny these days as the market is still reeling from the turmoil caused by Celsius earlier this year.
Nexo has so far stayed away from the crowd. Last week, the federally licensed firm also announced an investment in Summit National Bank. It has repeatedly said it will avoid unsecured loans. It even launched an offer to buy Celsius (although it may have been just a publicity stunt) because a distressed lender was in bankruptcy.
But now regulatory issues and some strange on-chain movements have raised concerns.
regulation
Eight states filed ceasefire orders against Nexo last week. Whether or not a product offered is a security is an old story. I’m not a lawyer so I won’t go into details, but the threat of having to withdraw certain products from the US market could clearly weigh on Nexo.
Kentucky regulators actually defendant Nexo declared its insolvency, declaring that without its native token, NEXO, it would have “debts exceeding its assets.” For anyone with a poor memory, that’s exactly what Celsius led before suspending withdrawals and filing for bankruptcy.
What people don’t realize is that if everything turns upside down, Nexo’s ability to monetize its holdings will be much lower than it is believed, as Nexo token trading volume is so low at 1% of market cap. is also significantly lower. paper. hence the concern.
Nexo moves money on-chain
The second part comes with an interesting withdrawal-on-chain that people were interested in. Yesterday a wallet named Nexo Wallet withdrew over $150 million from MakerDAO.
https://twitter.com/WuBlockchain/status/1576016313918836736
Clearly, this is a concern for many people given the similarities to the Celsius situation. I would be surprised if Nexo’s bankruptcy occurred during a period of relatively calm markets.
However, the fact that a cease and desist order was recently issued by the regulator adds an extra layer here. Nexo should have known this was coming.
After the move sparked some controversy in the market, Nexo released a statement saying, “This recurring transaction, which took place yesterday, is a loan under the company’s standard financial management, which is in line with the latest market dynamics. It represents repayment.”
What is my take on this? I still believe Nexo will be fine, but if the money is there, it’s going to be a little more nerve-wracking today than it was last week. The yields offered on the product are not worth the risk. Most of the time they offer a yield of around 4% on Bitcoin (Nexo’s base rate is 3% to 4%).
It’s also strange that Nexo didn’t warn the market beforehand to allay concerns.
A prudent risk-reward strategy at the moment is to hold off on yield-producing products until we have a clearer picture. I think Nexo will be fine, which is likely to be a hoot about nothing, but I believe in how well I run Nexo in relation to so many other companies in the industry. We are discussing whether there are any, but we are not sure. and thats all.