It’s the unfortunate reality that any crypto lender these days will be met with scrutiny, as the market still reels from the chaos caused by Celsius earlier this year.
Nexo has to date separated itself from the crowd. Last week it even announced a stake in federally chartered Summit National Bank. It has repeatedly stated it will steer clear from uncollaterised lending. It even launched a takeover bid for Celsius as the embattled lender was spiralling into insolvency (even if there is a chance that it was only a publicity stunt).
But now there is added concern after regulatory trouble and some curious on-chain movement.
Regulation
Eight states filed cease-and-desist orders against Nexo last week. It is the same old story surrounding whether the products offered constitute securities. I won’t get into the ins and outs because I’m no lawyer, but the threat of requiring to withdraw certain products from the US market could obviously squeeze Nexo hard.
Regulators in Kentucky actually accused Nexo of being insolvent, declaring that without its native token – NEXO – the firm would have “liabilities (that would) exceed its assets”. For anyone with a short memory, that’s exactly what Celsius led before they suspended withdrawals and filed for bankruptcy.
With the Nexo token having an extremely low trading volume of 1% of its market capitalisation, what people don’t realise is that if everything does turn upside down, the ability of Nexo to monetise its holdings is significantly less than one would believe on-paper. Hnece the concern.
Nexo moving money on-chain
The second part comes with a funny withdrawal on-chain that had people curious. A wallet labelled a Nexo wallet yesterday withdrew over $150 million from MakerDAO.
https://twitter.com/WuBlockchain/status/1576016313918836736
Obviously, this has a lot of people concerned given the parallels with the Celsius situation. For what it’s worth, it would surprise me if any insolvency for Nexo came amid a period of relative market calm.
However, the fact cease-and-desist orders were issued by regulators recently does add an extra layer here. But then again, the issue of security-or-not-a-security has hardly been unpredictable – Nexo should have, and likely did, know this was coming.
After the moves drummed up some controversy in the market, Nexo issued a statement clarifying that “this routine transaction made yesterday represents a loan repayment in line with the latest market dynamics and as per the company’s standard treasury management.”
My take on this? I still believe Nexo are OK, but if I had funds in there I would definitely be a little more nervous today than I was last week. Like I said as Terra was going down, the yield on offer for these products right now simply is not worth the risk. Most offer yields of around 4% on Bitcoin (Nexo’s base rate is 3%-4%) – are you really willing to risk it all for that?
It is also strange that Nexo did not warn the market in advance to quell any concern, as this too would have been obvious.
The smart risk-reward play right now is just to sit out the yield-generating products for now until we have a clearer picture. Because even though I think Nexo are OK and this is likely a much furore about nothing – I am on record discussing how well I believe Nexo I run in relation to a lot of other firms in the industry – we really can’t know for sure…and that says it all.
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However, perhaps more sombrely is Ethereum fees dropping 80% quarter over quarter. This is for no other reason than a good old-fashioned fall in demand. The macro situation remains absolutely abhorrent and it follows that demand for the network is down (I’m likely being a little harsh as Layer 2’s are partially exacerbating this fall in fees but it is largely due to an overall fall in demand).
Top of that list is good old Ethereum Classic – a coin which I had largely forgotten about until I noticed its hash rate had ballooned to an all-time high on the date of the Merge, nearly 4Xing overnight.