Nexo leaves the US after hitting a brick wall with regulators

Crypto lending platform and exchange Nexo will wind down its product offering as it looks to exit the US market after failing to forge a clear path forward with regulators.

Beginning December 6, 2022, the firm will discontinue its earned interest products in Kentucky, Maryland, Oklahoma, South Carolina, Wisconsin, California and Washington. Pending further notice, customers in these states will have access to Nexo’s other crypto product offerings.

Nexo is tired of conflicting regulations

Despite taking several steps to comply with regulators’ concerns, including removing clients from New York and Vermont, Nexo said it has grown weary of turf wars between government agencies that it sees as complicating compliance efforts. It also expressed dismay at several states filing lawsuits against the company without warning and therefore deciding to exit the US market.

“Given the challenges of the confusing and conflicting US regulatory regime, it is with heavy hearts that we begin the gradual and orderly exit from the US,” the company said in a blog post. “We will dedicate our time and effort to developing products and services for jurisdictions that understand the importance of blockchain technology in a rapidly digitizing world.”

Despite the suspension of its Earn Interest product, Nexo has assured customers that the payment processors will continue to process withdrawals.

It recently registered as a virtual currency operator with the Italian financial watchdog Organismo Agenti e Mediatori.

Nexo sued by high net worth investors for blocking withdrawals

While Nexo claims it has enough assets to cover withdrawals, it was recently sued for blocking withdrawals for high-net-worth investors who claimed the company prevented them from withdrawing part of their $126 million in assets in March 2021.

The plaintiffs alleged that Nexo froze their accounts and tried to force them to sell their holdings of Nexo’s original ERC-20 NEXO token at a 60% discount, a claim that former Bulgarian politician and founder Antoni Trenchev called “opportunistic.” In an interview with CNBC, Trenchev so that the company is optimistic about winning the case.

Next Celsius?

Nexo dismissed liquidity concerns after another crypto lender Celsius ran into a liquidity crisis earlier this year that led to a pause in withdrawals. Celsius engaged in high-risk, complex trades to offer clients what ultimately proved to be unsustainable returns of around 18%.

“Insolvency, bankruptcy is nowhere in Nexo’s reality,” co-founder Kalin Metodieve said in a YouTube Ask-Me-Anything in October 2022.

Like Celsius, Nexo caught the attention of regulators in several US states, who accused the lender of offering its Earn Interest product as an unregistered security.

Still, UTXO Management senior analyst Dylan LeClair pointed out on November 27, 2022 that Nexo’s return offering for stablecoin deposits is about ten times higher than decentralized lenders Aave and Compound.

While not a criticism of Nexo per se, LeClair noted that higher-than-market returns are correlated with “taking directional risk.” While Nexo may not be in trouble, it is a crypto company that makes money using a traditional banking model, offering lower returns than the interest it charges borrowers without the benefit of a lender of last resort.

Traditional financial institutions rely on lenders of last resort when other companies are unwilling to lend them the liquidity necessary to continue operations due to adverse market conditions. Lenders of last resort also step in when the banks do not have sufficient capital to honor customer withdrawals. Central banks often act as lenders of last resort to commercial banks.

LeClair mean that crypto companies operating with this model pose a significant risk to the customer.

Dune data reveals troubling asset mix at Nexo

Another point worth noting is that according to “crypto data guy” CryptusChrist, $307 million of Nexo’s $437 million in assets is reportedly made up of its own NEXO token.

Source: Dune Analytics/CryptusChrist

Should the value of the NEXO token plummet, this could compromise the company’s solvency.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.

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