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Is Nexo next on the list?

After FTX, will Nexo be the next Icarus of crypto? This is hinted at by the collapse of its $NEXO token and its backlash with the US legal system.

Nexo, 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 rescue and now the FTX disaster, Nexo is back 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 lend $10,000 in exchange for collateral of 1.2 BTC. The security is therefore much more important than the loan…

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

Except that when the value of this security falls (bear market), margin calls occur. Customers who are unable to increase their security are liquidated until they lose all their security.

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

Here is the supposed modus operandi:

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

However, Nexo’s business got complicated after 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 suit for the same reasons.

Nexo in legal turmoil

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

The complaint states:

  • “As of July 31, 2022, Nexo Capital Inc (which operates Nexo’s business on its website and mobile app) held $959,089,286 NEXO tokens, or 95.9% of all existing tokens, valuing them at 682 tokens. $823,570 on 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 happens:

NEXO
The value of the $NEXO token in euros during the last month / Source: coinmarketcap

What the Kentucky regulator reveals to us here is that Nexo not only has 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 Celsius, which had about half of the $CEL tokens in itself, but also the deposits and guarantees of the customers. The company then had 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 offset its losses.”

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

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

Dirty Bubble Media actually notices that “the total trading volume of the $NEXO token across all markets listed by CoinGecko reaches a large handful of millions of dollars”. Even much less, as we suspect that a good portion of these amounts are 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 definitely closer to $0. There are therefore concerns if Nexo used these tokens as collateral to borrow hundreds of millions of dollars.

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

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

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Nicolas Teterel's avatar
Nicolas Teterel

Journalist reports on the Bitcoin revolution. My papers address bitcoin through geopolitical, economic and libertarian prisms.

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