It is the sad reality that any cryptocurrency lender these days will be met with trepidation as the market is still reeling from the chaos caused by Celsius earlier this year. Nexo has so far stood out from the crowd. Last week, it even announced a participation in the federal government-led Summit National Bank. He has repeatedly stated that he will avoid unsecured loans. And it even launched a takeover bid for Celsius as the embattled lender was going into insolvency (even if there’s a chance it was just a publicity stunt). But now there is additional concern following regulatory issues and some curious movement up the chain.
regulation
Eight states filed cease and desist orders against Nexo last week. It’s the same old story about whether the products offered constitute titles. I won’t go into details because I’m not a lawyer, but the threat to demand the withdrawal of certain products from the US market could obviously put a lot of pressure on Nexo. Regulators in Kentucky actually accused Nexo of being insolvent, stating that without its native token – NEXO – the company would have “liabilities (which) would exceed its assets.” For anyone with a short memory, this is exactly what Celsius led before suspending withdrawals and filing for bankruptcy. With the Nexo token having an extremely low trading volume of 1% of its market capitalization, what people don’t realize is that if everything turns upside down, Nexo’s ability to monetize its holdings is significantly less than that you could believe on paper. Hence the concern.
Nexo moving money on-chain
The second part comes with an unusual retreat in jail that has people curious. A wallet labeled the Nexo wallet yesterday withdrew more than $150 million from MakerDAO.
https://twitter.com/WuBlockchain/status/1576016313918836736
Obviously, this has a lot of people worried, given the parallels with the Celsius situation. If it’s worth it, I would be surprised if any Nexo insolvency occurred amid a period of relative calm in the market. However, the fact that cease and desist orders have been issued by regulators recently adds an extra layer here. But then again, the question of security or non-security was hardly unpredictable – Nexo should have known, and probably knew, that this was coming. After the movements raised some controversy in the market, Nexo issued a statement clarifying that “this routine transaction carried out yesterday represents a loan amortization in line with the latest market dynamics and in accordance with the company’s standard treasury management” . My opinion on this? I still believe the Nexo is fine, but if I had funds there I would definitely be a little more nervous today than I was last week. As I said, while Terra was falling, the yield offered for these products is now simply not worth the risk. Most offer returns of around 4% on Bitcoin (Nexo’s base rate is 3% to 4%) – are you really willing to risk everything for this? It’s also strange that Nexo didn’t alert the market in advance to quell any concerns, as that too would have been obvious. The smart risk-reward move now is just to put aside income-generating products for now until we have a clearer picture. Because while I think Nexo is fine and that’s probably a lot of rage over nothing – I’m on record discussing how well I believe Nexo manages relative to many other companies in the industry – but we really can’t know for sure… And that says all.
