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NEXO: NEXT BANKRUPTCY CANDIDATE?



 Questionable returns

Nearly all of Nexo's peers have been forced to file for bankruptcy in recent months, crypto analyst Dylan LeClair has now questioned its offered yields of over 10%. His argument is based on the above-average returns for users compared to the rest of the decentralized financial market (DeFi).


LeClair explained:


If the rate of return offered is higher than the 'risk free' market rate, then by definition there is direct risk.


Other crypto lenders, such as Celsius, BlockFi, Voyager, and Vauld, have already been victims and reeled from the FTX collapse.


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Distrust of credit products

The US Securities and Exchange Commission (SEC) took action against similar products last year. For example, BlockFi was forced to withdraw its first high-yield offering after a $100 million SEC settlement. Recently, the Australian Securities and Investments Commission (ASIC) also sued the fintech company Block Earner. The company's high-yield products essentially functioned as unregistered financial services, the regulator claims.


Due to the continued lack of regulation for crypto loan products, the platform is now facing further problems. The London-based lender has faced court charges for allegedly preventing three investors from withdrawing more than $126 million worth of cryptocurrency in 2021. According to the allegations, Nexo forced investors to sell their holdings at a discount of 60%.

Recent Lawsuits

In recent months, the California Department of Financial Protection (DFPI) and seven other states have issued injunctions against Nexo. Co-founders Antoni Trenchev and Kalin Metodiev then affirmed the platform's continued healthy solvency and resilience.


Metodiev added:


Nexo is far from filing for bankruptcy or bankruptcy.


As LeClair argued, by borrowing secured funds from users, Nexo earns an interest rate that is higher than the rate of return offered. However, in a system without a lender of last resort, such a crypto-based commercial banking model could quickly collapse. According to LeClair, one-time liquidity problems would already be enough and the platform could close.


The analyst pointed to the Terra debacle as an example and warned:


Keep your coins away from counterparties, much less lend them out for a return.


He also highlighted that the company controls over 82% of the total supply of its tokens. As another user noted, 85% of all Nexo assets held on Ethereum are made up of NEXO tokens. Accordingly, the support of the platform could be at risk as a result of any liquidity problems that may arise.

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