Is Nexo next on the list?

After FTX, will Nexo be the next Icarus of crypto? This is suggested by the collapse of its $NEXO token and its setbacks with the American justice system.

Nexo, the Celsius bis

Founded in Bulgaria, but registered in the Cayman Islands, Nexo is among the last to stand. But after the Celsius woes, the Blockfi bailout, and now the FTX disaster, Nexo is once again in the spotlight.

Nexo presents itself as the equivalent of a bank, but “better”. You see, these people accept deposits of awesome shitcoins…

Bags of shitcoins can be used as collateral to obtain loans in forty different fiat currencies. Nexo, for example, offers to borrow $10,000 in exchange for collateral of 1.2 BTC. The collateral is therefore much more important than the loan…

This service allows you to borrow without having to pay capital gains tax when selling your BTC and other shitcoins to contribute to a traditional bank.

Except that when the value of this collateral decreases (bear market), margin calls occur. Clients unable to increase their collateral are liquidated until they lose all of their collateral.

We reported in July that it would be a relatively trivial story if Nexo was not suspected of using its customers’ bags against them…

Here is the supposed modus operandi:

1) Collect illiquid shitcoins certain to lose 90% of their value in the bear market through loan or savings (“Earn”) services.
2) Wait for the bear market, or even accompany it by liquidating the shitcoins deposited by customers…
3) Pocket the difference between the loan and the collateral.

Nexo’s business, however, became complicated following the $100 million fine imposed on its counterpart Blockfi. The latter also offered “earn” products via securities not registered (shitcoins) with the SEC…

Nexo’s turn came on September 26, 2022, when eight US states filed suits for the same reasons.

Nexo in legal turmoil

After investigation by the Kentucky authorities, it appears that the only asset making Nexo solvent is the $NEXO token. This token is to Nexo what FTT is to FTX or BNB to Binance.

It is written in the complaint:

  • “As of July 31, 2022, Nexo Capital Inc (which conducts Nexo business on its website and mobile app) held 959,089,286 $NEXO tokens, or 95.9% of all existing tokens, and valued them at 682 tokens. $823,570 in his accounts. »
  • “If we exclude these $NEXOs, Nexo Capital’s liabilities would be greater than its assets. »

In other words, Nexo would be insolvent if the value of $NEXO were to collapse. But this is exactly what is happening:

Value of the $NEXO token in euros over the last month / Source: coinmarketcap

What the Kentucky regulator reveals to us here is that Nexo not only holds 475 million “pre-mined” $NEXO tokens. But also most of the other 525 million $NEXO sold during the ICO.

According to Dirty Bubble Media, the similarities to Celsius are stark:

“The situation is almost identical to that of Celsius which held about half of the $CEL tokens in its own right, but also the deposits and guarantees of its customers. The firm then held in its accounts more than 90% of the total existing $CEL tokens. There was a massive imbalance between the concentration of $CEL tokens and the liquidity available in the markets. Ultimately, Celsius found itself unable to use its $CEL to make up for its losses. »

Indeed, the CEL ended up losing 90% of its value since the 2021 ATH.

There is no way Nexo could sell a significant fraction of its tokens without their value collapsing. Especially in the current market conditions.

Dirty Bubble Media indeed notes that “total trading volume for the $NEXO token across all markets listed by CoinGecko reaches a big handful of millions of dollars”. Even much less given that we suspect that a good part of these volumes is artificial.

In other words, the $NEXO token is even more illiquid than Celsius’ $CEL token which went bankrupt.

Therefore, the true value of tokens on Nexo’s balance sheet is certainly closer to $0. There is therefore concern if Nexo used these tokens as collateral to borrow hundreds of millions of dollars.

This strategy works…until trust in the pre-mined token collapses…

If Kentucky regulators are right, and all that separates Nexo from insolvency is overvalued tokens, run away you fools…

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Nicolas Teterel avatar
Nicolas Teterel

Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic, and libertarian prisms.

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