NEXO is a project which has recently garnered quite a bit of interest in the cryptocurrency community.
Not only is NEXO being developed by a large FinTech company but they are also being backed by some pretty influential names in the cryptocurrency space. The NEXO token has also been gathering quite a bit of momentum over the past few weeks.
However, what is NEXO exactly and should you consider it?
In this comprehensive review of NEXO, we will take a deep dive on the project and will look into the technology, use cases, team members and long term NEXO coin prospects.
With that being said, let’s start with the basics.
What is NEXO?
NEXO is a project that’s aiming to provide lending services while using cryptocurrencies as collateral. While there are certainly some issues that will need to be ironed out to make this work successfully, the team seems to be well on its way, and has strong backing. With NEXO cryptocurrency owners will be able to get fiat currency if needed, but still maintain ownership of their digital assets.
It’s the best of both worlds.
Steps to get an Instant Loan on Nexo
It works by allowing borrowers to lock up cryptocurrencies as collateral in exchange for fiat currency. The cash is either sent directly to a bank account, or it can be added to a prepaid credit card. In case of market volatility (which is almost a given with cryptocurrencies) the limit on the credit card will adjust in response to changes in the market value of the underlying cryptocurrency.
The Nexo Team
Nexo has a core team of 14 members, most of whom also hold high level positions at the European consumer FinTech company Credissimo. Kosta Kantchev is the chief managing partner and co-founder of Nexo, and he was also a co-founder of Credissimo.
A second managing partner and co-founder of Nexo is Antoni Trenchev, who was previously a Member of Parliament at the National Assembly of the Republic of Bulgaria. He also has more than 7 years of experience in e-commerce development and strategy as well as automation of e-commerce processes.
The third managing partner and also a co-founder of Nexo is Georgi Shulev. He has more than 6 years of experience in the investment banking industry and was a co-founder of Consestimate, an open financial estimates platform.
Credissimo by the numbers
On the IT side, the fourth co-founder of Nexo is Vasil Petrov, who brought over 16 years of experience in system administration, back-end development and architecture to the Nexo project.
Advisors of Nexo include Michael Arrington, who was the founder of TechCrunch as well as Arrington XRP Capital. Trevor Koverko, the founder of Polymath is a second advisor, and the advisory team is rounded out by Ugo Bechis who brings 40+ years of experience in SEPA compliance and finance to the project.
NEXO Market Access
While Nexo is based in Switzerland, it makes its loans available worldwide. Anyone who holds cryptocurrency can take advantage of a Nexo loan. And since the loans are fully collateralized there’s no need for borrowers to worry about credit history or approvals.
Of course the use-cases for Nexo loans will be limited since they’re collateral backed, but the use of cryptocurrencies as collateral makes for a compelling alternative for those who hold cryptocurrencies and don’t want to sell yet and give up future gains, but still need fiat currency to access certain opportunities.
SALT vs. Nexo Lending
Looking at the closest competitor SALT, they are also a collateral based platform, and are based in the U.S. and roughly 30 other countries at the time of this writing. SALT differs from Nexo in its use of a membership structure, where the ownership of more SALT tokens unlocks higher membership tiers. Each higher membership tier unlocks greater borrowing potential, better repayment terms, and additional fiat currencies besides USD. All of this makes SALT somewhat inclusive.
Loan Repayment with NEXO
Any loans taken can be easily repaid using cryptocurrency, fiat currency, or the Nexo token. They have made it as easy as possible to repay any loans. Compare this with the closest Nexo competitor SALT, who only accepts loan repayment in fiat currency.
Using the NEXO Token
One incentive for holding the NEXO token is that it pays dividends to holders. Thirty percent of the profits generated from Nexo loans goes to a dividend pool that is then distributed to NEXO holders. Currently dividend payments are being made in Ethereum (ETH), but there’s a good chance that this will expand to other cryptocurrencies in the future.
The benefits of investing in NEXO tokens
Besides being a source of dividends, the NEXO tokens can also be used to repay loans, and the incentive for this is a reduction in repayment interest on the loans. This is similar to bank loans that offer lower interest rates or a discount when auto-payment is set-up. Holding more NEXO tokens in your wallet will also unlock higher loan limits.
NEXO and Regulation
Nexo has been very clear in stating that the NEXO token is a security token, and that it is compliant with the Securities and Exchange Commission Regulation D Rule 506(c). They refer to the Nexo token in their documentation as a dividend paying asset which is backed by collateralized assets.
While traditional institutions don’t yet recognize it, there is a difference between fiat as collateral and crypto-assets as collateral in that crypto-assets have additional utility. It seems fortunate that Nexo has been upfront about the status of their crypto-asset, and that they are making every effort to remain compliant with U.S. regulations.
How Nexo Handles Crypto Volatility
Cryptocurrencies are the most volatile assets on the planet, with daily price swings of 10% commonplace, and monthly price swings of 50% or more not unusual. Stablecoins like TrueUSD and Tether have learned to deal with upside price moves, but still struggle with falling prices. Nexo plans on using a concept from traditional lending known as Loan-to-Value to assess risk. In traditional lending a borrower who is considered a default risk is given a higher LTV.
Loan to Value vs. Liquidity. Image Source: BDC
Nexo uses an algorithm called the Nexo Oracle to determine the LTV ratio for borrowers. Given the volatility that comes with cryptocurrencies it’s likely that LTV ratios will often be greater than 50%, unless cryptocurrencies become far less volatile (which has been occurring for Bitcoin). In practice this means if you have $10,000 in Bitcoin in your wallet and the LTV is 50% you’ll be able to take a loan for 50% of your wallet Bitcoin balance, or $5,000.
The Nexo Oracle will work to avoid a situation similar to the U.S. housing crisis, when many home values dropped below the value of the loans on those properties. Because there is always a risk of declining asset values in the cryptocurrency markets the Nexo Oracle will be used to issue margin calls, or notifications to borrowers that additional collateral is needed to maintain a loan in good standing. When a borrower ails to heed these notifications they risk having their loans forcibly liquidated to reclaim the proper LTV ratio.
The Nexo Oracle
The Nexo platform uses a technology called the Nexo Oracle to monitor and regulate all aspects of the platform including analytics, loan distribution, asset monitoring, wallet maintenance, and others.
Nexo Oracle Overview. Image via Nexo whitepaper
When borrowing on the platform the borrowers send their cryptocurreny to the Nexo crypto overdraft wallet. The issuance of the loan and repayments are taken care of directly by the borrower through the Nexo user interface. The user interface is available as a web-based version with plans to release a mobile version.
Eventually the platform will be available on desktop as well, and by adding a physical credit card the entire platform and process will be familiar even to non-cryptocurrency users. This is intended to increase the adoption rate of the platform.
As you might guess with a product like this, Nexo has an aggressive roadmap to keep itself ahead of any potential competition. So far they’ve been doing well, although they missed their July 2018 deadline to introduce the Nexo credit card and are now pushing that back to the fourth quarter of 2018. Also on-tap for the fourth quarter of 2018 are an affiliate/tell-a-friend program, the mobile Nexo wallet, and a second Nexo airdrop campaign.
In my mind the first quarter of 2019 is far more interesting and will be more telling for future growth as they plan to finalize the acquisition of an FDIC-insured bank, and introduce deposit accounts.
Further out, the second quarter of 2019 has plans for an enterprise API, installment loans, and a higher cap on loan limits.
After hitting an all-time high of $0.536 back in May 2018, the price of NEXO tokens declined along with the rest of the cryptocurrency markets. By September 2018 the price was below $0.05, or less than half of the ICO price.
The good news is that the token has been recovering since late September and has price doubled in just 2 weeks, with NEXO trading at $0.105 as of October 4, 2018. That recovery has occurred even as the rest of the cryptocurrency market has remained depressed and without any major news from Nexo.
If you wanted to buy NEXO tokens then there are a few exchanges that you can use. No doubt the bulk of the volume for NEXO comes from Allbit which has over 47% of the volume. However, you could also get it on the HitBTC exchange which is probably more well known.
If you believe that cryptocurrencies have real-world utility as a means of payment and transfer of value then you should believe in the Nexo project. A lending platform that allows cryptocurrency holders to unlock the trillions of dollars of value without having to give up ownership of their cryptocurrencies is a huge deal.
Beside simply unlocking value, Nexo loans can allow cryptocurrency holders access to funds without the need to pay taxes on what could be significant profits from their crypto-holdings.
The fact that the team has more than 10 years of experience running an established financial services firm is another positive for Nexo. You can be sure they analyzed the need for cryptocurrency lending services, and with their experience they are well suited to see this project to success. They also have solid help from advisors such as Michael Arrington, the founder of TechCrunch.
There is a very good possibility that cryptocurrency lending could become a multi-billion dollar industry, and could potentially see itself as a trillion dollar industry if crpytocurrencies escalate in value as some financial advisors have suggested they will. With that scale market on the horizon now could be a very good time to get in on Nexo at its infant stages.
Featured Image via Nexo.io