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Nexo Has Been Stress-tested in a Way No Bank Has Ever Been

Feb 6·4 min read
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Nexo Has Been Stress-tested in a Way No Bank Has Ever Been

This Friday, Nexo Co-founder and Managing Partner Antoni Trenchev sat down with Francine Lacqua from Bloomberg for an exclusive interview that untangles sentiments around crypto’s current status, Nexo’s place in it, and the company’s mission of acquiring a bank.

Watch the complete interview here:

Or have a quick read of the summary below:

  • While traditional banks warned clients to brace themselves for negative interest rates, Nexo is in a position to provide up to 12% interest.
  • With US banks and PayPay getting into crypto, and teams like Nexo’s bringing extensive financial and regulatory knowledge to blockchain, the gap between traditional finance and crypto is slowly disappearing.
  • Nexo is in the process of acquiring banks in Europe and the US to bring clients even more protections and insurance currently available only through banks.
  • Nexo’s deleveraging and overcollateralization model was stress-tested like no bank has ever been during the 2018 crypto crash and again in the pandemic panic of March 2020.

The beginning of 2021 has been stellar for the crypto industry and even more so for Nexo, with our native NEXO Token now climbing well above one dollar. We’re thrilled to be contributing to our industry’s success and wish you all the best as crypto continues to scale into the financial system of the future.

Transcript

Francine Lacqua
Joining us now is Antoni Trenchev, he’s Co-founder and Managing Partner of crypto lender Nexo. Antoni, thanks for joining us. First of all – what exactly is the role of Nexo? What is a crypto lender?

Antoni Trenchev
A crypto lender is an institution for digital assets that provides banking services to the blockchain space. Our two main products are the crypto-backed loans, meaning you can take out a loan against something such as Bitcoin staked as collateral, which has been great with the current bull run because you tap into your crypto wealth without actually having to sell your crypto. And then the second product is the ‘Earn interest’ product, which in this low-interest environment, wherethe Bank of England this morning announced that we should brace ourselves for negative interest rates, we are in a position to pay you up to 12% interest.

Francine Lacqua
Antoni, I guess the concern is that if you look at crypto-based companies, they've always struggled to bridge to the other side, to banking services, I think as a result of some of the crypto uncertainty, concerns of money laundering. How do you actually bridge this gap?

Antoni Trenchev
Well, we are a company that tries to do exactly that – to bridge this gap. We are from a very traditional, regulated background. We have been in fintech before the term was even coined. And, truth be told, it's getting easier. With signs from the Department of the Treasury via the OCC where banks in the US can now custody Bitcoin, with some of the more traditional companies such as PayPal allowing exposure to crypto, the gap between the two is slowly being breached in a natural way and there are on- and off-ramps to crypto and fiat and vice-versa. So it has been an incredible year.

Francine Lacqua
Do customers who leave deposits with you enjoy the same protection as High Street, so is there a government deposit guarantee in place?

Antoni Trenchev
Not at this stage, although we are working on a bank acquisition. Actually two bank acquisitions, one in the US and one in Europe, which will bump up the protections that investors have. Оur protection is that we have a business model that actually makes sense. We are deleveraging the system in terms of the loans that we extend, they are secured 100%. So, if you are earning on $50K, there is someone else putting $100K in crypto, so double that. We’d then use the funds received from our ‘Earn Interest’ products to finance these loans And it is, I would argue, a much better and more natural protection because the business model protects you and it goes beyond the regulatory guarantee of just $100K or $200K depending on where you are. It is the fundamentally sound business model and the lack of mystery of where the money is coming from that gives you this protection.

Francine Lacqua
The problem, Antoni, is that it's so volatile, right? The problem is the stability. Do you have worries at some point that actually you’re less stable as a lender because of what you use as collateral? But actually you know Bitcoin can go from like five to three hundred thousand and you don't really understand the underlying demand behind it.

Antoni Trenchev
Crypto is volatile and volatility is here to stay. But that is one of the reasons – its inherent volatility – that we're having this conversation right now. That's why we have the deleveraging process. We have very efficient mechanisms at Nexo which ensure that the loan-to-value ratios remain as they should at all times. And we have been in the market since early 2018, which saw a year of Bitcoin declining 86% and we still managed to make money and none of us as a company and our clients lost any money. So this is stress-testing in a way that I don't think a traditional bank has been stress-tested.

Francine Lacqua
Yeah. Who regulates you and what are your reserve requirements?

Antoni Trenchev
We are a global enterprise. We are operating in any jurisdiction, apart from the sanctioned countries, so this varies from country to country. We have various consumer lending licenses in the US, we are pending authorization by the FCA in London. So it really depends on the jurisdiction and where you are based. In Switzerland we are part of a self-regulatory organization, so it is quite an endeavor on that front, but the team is great and we have had quite some successes.

Francine Lacqua
I guess I'm just trying to figure out the reserve requirements because it's a very different business model than you have to some of the other lenders. So can you give us an indication – is it different from country to country? How much do you need in terms of reserve requirements or is it something that you go across the board?

Antoni Trenchev
We don't have strict reserve requirements like you would have for fractional reserve banking in the banking sector, like what you would traditionally have in place. We have excess liquidity and due to the under-leveraging of the system we have more than enough capital adequacy and it exceeds all liabilities. But there are no strict rules as you would have in the banking sector, set in stone, and that the regulator would look at right now.

Francine Lacqua
Thank you so much for the wonderful conversation as we try to understand exactly what these crypto assets actually become.

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