A centralized finance (CeFi) platform, Nexo, lets users earn interest and avail of loans on their cryptocurrencies. Operating since 2018, Nexo is among the largest lending institutions in the digital finance industry. Nexo claims to manage assets for over 2 million users across 200 jurisdictions. Total assets under management (AUM) stands at over $12.5 billion, an over 200% jump from a year ago. As of Q3 2020, the total AUM for Nexo stood at $4 billion. The platform also has a native token, NEXO, which aims to nurture a loyalty program, bringing with it higher earning rates and low borrowing rates.
Read on to know more about Nexo, and see if it fits your criteria of an ideal staking service provider. I tried out the service. So I’ll share my experience within this post.
Firstly, creating an account was fairly straightforward and the advanced verification, which included scanning an official ID and a face scan, went off really smoothly and was completed in a matter of minutes.
Purchasing crypto, let’s say, Bitcoin for example, with a card, came at a cost of 1.49%. For non-EU countries, the charge for card purchases is 3.49%. To get an idea of the amount of crypto received against FIAT purchases, check out their calculator here. If you are new to cryptocurrencies and looking to buy crypto for the first time, the cost of purchasing crypto with FIAT, in my own personal experience, would not be too different from the rates here. However, please do your own research here. Also, Nexo supports transferring cryptocurrencies from any other exchanges or wallets you may be holding them on. As always, please ensure taking proper note of the address and chain. The platform supports Visa and MasterCard purchases, and the interface was fairly intuitive.
Delving into the product offerings at Nexo
Before delving into the products at Nexo, it helps to understand their business model. Quite like a traditional bank, Nexo offers interest on depositing assets and charges interest on giving out loans. The difference between the interest earned and the interest paid out translates into their profit margin. Obviously, given the nature of assets involved here i.e. cryptocurrencies, which may be considered a highly volatile asset class, there are certain adaptions to the business model. This typically involves the adoption of various risk management strategies, including higher collateral and the use of under-leveraging. Let’s take an example to delve further. A $100 loan on Nexo, for example, would require collateral equivalent to 0.00323453 Bitcoin i.e. $200, at the time of writing, translating into a 50% loan-to-value (LTV).
The same loan using Polkadot (DOT) as collateral has a 30% LTV. A lower LTV protects clients from the daily fluctuations of crypto prices, thus making it less likely that a client will end up losing their crypto. At the same time, it also ensures Nexo is protected, should a user default on a loan. Beyond this, the platform implements the Nexo Oracle which tracks cryptocurrencies’ prices in real-time, thus managing risks. If, for example, the price of the assets deposited as collateral drops, the Nexo Oracle mitigates the risk of potentially having to sell off a portion of a client’s assets by sending notifications to the borrower. This could either include the borrower topping up the collateral or making a partial repayment.
Nexo Products and Services
Nexo’s products and services can also be availed of in a desktop and app version. The app is available on Google Play and AppStore. It’s easy to use, mimicking functionalities of the desktop platform and comes with a focus on necessary security measures. This includes 2FA authentication and biometric identification, withdrawal confirmations & log-in Alerts. A quick mention here, the app enjoys a rating of 4.5 on Play Store (15,202 ratings) and 3.6 on App Store (578 ratings). Here’s a quick look at Nexo’s products:
Earn Crypto Interest
One of the mainstay products of Nexo, Earn Crypto Interest advertises an APR of up to 12% APR, paid out daily. Currently, this is offered on over 20 assets. Bitcoin and Ethereum and most major cryptocurrencies invite an annual interest of up to 5%. This, though, depends on the user’s progress within the NEXO loyalty program. The chart below spells this out, detailing how moving up loyalty tiers depends on the percentage of NEXO tokens held in your portfolio. There’s more on the loyalty program later in the post.
A Base account with, let’s say, no NEXO tokens within one’s portfolio maintained on the platform, will earn you an interest of 4%* on most major cryptocurrencies supported. Opting to have your interest credited in NEXO tokens can attract an additional 2% rate. The interest rate on Stablecoins goes up to 8% per annum.
* FLEX Interest Rate is the current interest rate compounding daily on the balance. It consists of the Savings Interest Rate of one’s Loyalty Level and the 2% bonus rate when one opts-in to receive the interest in NEXO Tokens.
Instant Crypto Credit Lines™
Nexo offers over 20 collateral options and in excess of 40 fiat currencies and stablecoins to borrow in. The process of borrowing is fairly straightforward with instant approval. It typically involves, topping up your collateral, which makes your available credit immediately known, giving you the option to borrow.
Let’s take a look at this product with an example. To borrow an amount of $1000, you need to provide collateral equivalent to 0.03 BTC ($2010 as of 20 October 2021). You will pay an interest of 13.9% a year at the Base Loyalty Level (refer to the chart above). Depending on the percentage of NEXO tokens staked can lower the interest rate to 6.9% per year.
Finally, completing the NEXO ecosystem is the NEXO Card. Offering 2% cashback on every purchase, the card lets you choose to receive rewards in NEXO Tokens or BTC.
The team at the helm
The team is led by Antoni Trenchev, co-Founder & Managing Partner. Prior to NEXO, Antoni managed his own hedge fund and was also the Chief Innovation Officer (CIO) of the largest fashion retailer in Bulgaria, MDL Ltd. Interestingly enough, earlier he served as a Member of Parliament in Bulgaria, campaigning for legislation to enable blockchain solutions for government services, including e-voting. Another co-founder of NEXO is Kalin Metodiev, CFA. Kalin has served as the Chairman of the Managing Board of the CFA Society Bulgaria since 2005. He carries extensive experience in the field of Corporate Finance and Investment Banking.
Security and Insurance
Obviously, as a user, security takes precedence in selecting a provider when it comes to crypto lending and borrowing. Nexo’s taken some major steps in building trust within this area. By partnering BitGo and Ledger Vault, Nexo has availed of coverage of $375M in insurance protections for digital assets held on the platform, protecting it against security breaches. So far, in its operating history, Nexo has never faced a security breach.
Compliance & Risks
Besides this, Nexo has initiated a number of partnerships focused on compliance with regional regulations and global KYC and AML standards. Recently, Nexo engaged Armanino LLP, an accounting firm in the US, to provide attestations over assets and liabilities. A real-time Proof of Reserves assessment is available here. This is indeed a major step towards transparency, especially given a platform like Nexo involves a high degree of centralization.
Here’s a full list of licenses and registrations Nexo has across jurisdictions worldwide. In fact, just recently, Nexo was in the news after being named by New York Attorney General James among two crypto lending companies to cease operations, citing failure to register the business in New York. On its part, Nexo said it is not offering its Earn Product and Exchange in New York. The matter is ongoing.
Community & Support
Clearly, Nexo has developed a strong community, which reflects across its social channels. Regular updates, as is the case with any project, always helps, and the team seems to be on top of this. A look at the Twitter account reflects this. Here’s a look at the followers across its social channels, compared to some other prominent providers:
The community seems engaged and all of the social channels seem updated and well covered. There’s also an effort in terms of educating the community with the regular AMA’s and knowledge-based Brainer sessions on YouTube.
One thing that stands out for Nexo is that it enjoys a rating of 4.6 on Trustpilot with nearly 6500 reviews. That is significantly higher than BlockFi and Celsius Network.
Competition & Comparison
As outlined earlier, Nexo’s total AUM stands at over $12.5 billion, making it among the top players within this space. To put this in perspective, BlockFi has over $15 billion AUM, while Celsius Network has over $26 billion in AUM.
How does Nexo compare with Celsius Network or BlockFi on rates offered? Let’s assume $1000 worth of Bitcoin. Taking a base case scenario, Nexo offers a 4% interest rate on BTC deposits. BlockFi has a tiered structure, offering 4.5% on Bitcoin deposits of similar value. Celsius Network, at the time of writing, is offering 6.20% on Bitcoin deposits. Benefits vary depending on the loyalty program tier, among other criteria.
Nexo does have a strong loyalty program which comes with a number of benefits depending on the loyalty tier, which encourages trade in the native token NEXO. The chart below provides an overview of the loyalty program:
On the fees, once the free withdrawal limit is reached, users are automatically charged a fee incurred by the network. The fee is not fixed and depends on the current condition of the respective blockchain.
The NEXO token
Launched in 2018, the NEXO token is the basis of the platform’s loyalty program. Depending on the amount of NEXO tokens held as a percentage of one’s portfolio, it can invite higher yields, better rates on borrowing, a greater number of free withdrawals and so on. Currently, there are 560 million tokens in circulation from a maximum supply of 1 billion. At the time of writing, the token is valued at $2.69, with a market capitalization of $1.52 billion.
As highlighted in one of our recent posts, centralized finance apps, like NEXO, have been seeing growing popularity, as reflected in their AUM growth. Ease of use, limited tech knowledge to get going, are some reasons these platforms find favour when it comes to earning a yield on crypto assets.
Here, I’ve summarised a few pros and cons of the platform as I see them,
On NEXO specifically, it is among the frontrunners in its area of operations. With a lineage of over 3 years, backed by an experienced and well-respected team, a focus on safety and security, NEXO seems to tick most of the crucial checkboxes a crypto lending and borrowing service provider must have in place. What particularly stood out was a seamless and intuitive platform, which makes the usage very easy. The platform seems to enjoy a strong level of stickiness with the community which reflects in the ratings it enjoys. This is reciprocated by the team with regular updates and interactions, keeping the community informed.
However, as is the case with other providers, there is a high degree of centralisation at Nexo too with the involvement of the company. Accordingly, risks persist. So it is essential you are aware of that.