Thursday, February 2, 2023

Is Nexus Secure? What is crypto lender doing differently and red flags?

Several crypto lending companies have gone bankrupt due to bad practices and exposure to failed companies, the latest being BlockFi.

BlockFi filed for Chapter 11 bankruptcy protection in the United States on Monday night, weeks after the company halted user withdrawals. BlockFi is the latest to pull out due to its exposure to Sam Bankman-Fried’s crypto empire earlier this month. In its filing, the company named more than 100,000 creditors and $1 to $10 billion in assets and liabilities.

The lending firm appears to be at the end of the wave of liquidity crunches that has plagued the crypto industry this year. In the span of six months, most crypto lenders have exited. However, one such company, Nexo, is still quite resilient and is still running, apparently. But is Nexo really safe?

What is Nexo doing differently?

Following BlockFi’s demise, many cryptocurrency users now have Nexo on their radar for the slightest mischievous act that might warrant a red flag. Seeing the Storm, Nexus public A long thread of tweets explaining their business practices and why their operations are different from other counterparties has gone down.

Nexo offers various crypto services including crypto-backed loans, margin loans and institutional OTC loans; products that earn interest and stakes; and commercial services (spot, futures, options, OTC, etc.). However, the company said that its core business is providing collateralized loans, based on fully liquid collateral, at suitable loan-to-value ratios to institutional and retail customers.

Unlike other firms that lend to large companies and trading desks such as Genesis, Nexo claimed that the assets of its earning program were loaned to customers who were looking to borrow against their Nexo-deposited crypto, which Lending rates were starting from 13.9%.

Nexo also claims to be the most efficient and battle-tested price-based collateral settlement engine that protects the parties involved. The company has compared its system to DeFi protocols such as DeFi Away Maker, which will automatically liquidate positions if the collateral ratio falls below 120%.

Is Nexo profitable?

Nexo said that its services are profitable. For one thing, the company said it generates profit from lending through the positive net interest difference between the interest rate it receives and the return it returns to depositors. The company also said that it charges spreads and fees from clients when they use its trading services.

All these activities: exchange services, crypto-backed loans, collateral settlements, betting, etc. They are income generators that require Nexo to hold and transfer balances across multiple exchanges and DeFi protocols as part of standard operations.


Nexus Reserve Test

Nexo did not publish the addresses of its reserves, but claimed that its assets exceed customer liabilities, according to a 2021 audit by a PCAOB-certified auditor and a major US accounting firm. Furthermore, the company claims that its native cryptocurrency NEXO token alone makes up less than 10% of its assets.

The company denied any contact with FTX/Alameda; Genesis, Gemini, Luna, BlockFi; UST/Luna, capital of the Three Arrows; Celsius, Babel, Hodlknot; And crypto miners are in trouble.

Red Flags: Can Nexo be trusted?

The tweet is apparently an attempt by the company to clarify its actions and ensure transparency in light of the fallout from other lenders. However, the surprising events that unfolded this month have taught most cryptocurrencies not to trust any company completely to the letter.

Like other collapsed lending companies, many blame Nexo for offering up to 10% yields on stablecoins, compared to 1% yields on DeFi and 4.5% on short-term US Treasuries. Data from Dune Analytics shows the Nexo token represents roughly 85% of the company’s assets on Ethereum

Nexo has also been accused of acting more like a hedge fund than a bank. Some of Nexo’s profitable activities are essentially market building, a line of business similar to Genesis and Alameda, which are currently bankrupt.

Many also dispute Nexo’s claim that market-neutral strategies make up a significant portion of its revenue, which is used to maintain the Earn Interest service.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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