The crypto borrowing and lending platform Nexo just lately offered transparency into precisely how its enterprise makes cash.
Its prolonged breakdown follows the collapse of quite a few high-profile crypto lending companies that had been overexposed to defunct tasks and companies.
Nexo’s Enterprise Mannequin
As Nexo explained in a Twitter thread on Monday, Nexo’s main enterprise technique is to facilitate collateralized credit score. Its core providers embody crypto collateralized loans, interest-bearing crypto accounts, and spot, futures, and choices buying and selling.
By means of its Earn product (crypto curiosity accounts) the corporate accrues funds for extending loans to different shoppers. By charging larger curiosity on shopper loans than the yield it supplies its collectors, Nexo generates a web revenue.
By requiring 2:1 collateralization for the loans it points, Nexo ensures that it at all times has sufficient to repay collectors – even within the occasion of its debtors defaulting. Whereas crypto collateral can certainly be risky, the agency additionally makes use of an auto liquidation mechanism to make sure collateral is offered earlier than falling underneath a 120% worth to mortgage ratio.
“All these actions are income mills that require Nexo to carry on and transfer balances throughout a variety of exchanges & DeFi protocols as a part of customary operations,” defined Nexo.
Many crypto firms, together with lenders, misplaced cash to FTX this month attributable to merely holding funds contained in the agency. The change, which filed for chapter alongside its sister agency Alameda Analysis, is believed to have commingled shopper property with the buying and selling desk.
Two of these companies embody BlockFi and Genesis Buying and selling – the previous of which additionally filed for chapter on Monday. Nonetheless, Nexo claims to have held no publicity to FTX, Alameda, Celsius, or another agency to go bancrupt this yr.
“We have now persistently refused to increase uncollateralized loans to the high-flying crypto asset managers,” wrote Nexo. “It’s a basic precept for Nexo that has resulted in no unhealthy debt throughout market turmoils.”
In contrast to FTX, the corporate additional asserted that it has by no means used its native token, NEXO, to collateralize loans it receives.
Proof of Reserves?
Nexo mentioned it’s incapable of offering full proof of reserves for its property – a newly popularized blockchain-based resolution for auditing centralized crypto custodians. The corporate should maintain its shoppers’ funds throughout a number of exchanges and DeFi protocols with a purpose to generate income by means of buying and selling.
As such, the corporate makes use of an unbiased auditor to observe all of its property and liabilities.
