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You Asked, We Answered: The Daily Interest on NEXO Tokens Proposal

Jun 2·11 min read
Product
You Asked, We Answered: The Daily Interest on NEXO Tokens Proposal

Hi everyone, this is Rosen, Nexo’s Community Manager. I’ve spoken to many of you on Reddit, Telegram, and on other channels. For those of you that I haven’t met yet, my role at Nexo is to make sure your voices are being heard and your questions are being answered.

We recently informed you of our first Governance Vote: the Daily Interest on NEXO Tokens proposal and – quite understandably, considering how great a change to the NEXO Token this proposal entails – the community has been showering me with questions about it. I’ve therefore taken it upon myself to collect your questions about it, address the most common topics, and bust a few myths about the vote in the process.

In this article, I’m setting out:

  1. An FAQ with answers to popular community questions
  2. A list of the key benefits of the Daily Interest proposal
  3. A list of the key benefits of the existing Dividends Program

1. Your Questions Answered

Is Nexo going to use its token reserves to pay interest, slowly increasing circulating supply and thus impacting token value?

No, because that’s not in the community’s best interest, nor in Nexo’s in the longer term. Inflating the supply of tokens in circulation would depreciate the value of the NEXO Token, and that would be counterproductive for all stakeholders, be they clients and investors, our management team, our employees, or partners that we work with. Hence, all tokens used for the daily interest payouts will be sourced from the open market.

If Nexo uses reserved tokens to pay interest, increasing circulating supply over time, are there any plans to do a token burn or implement a buy-and-burn mechanism?

I’ve double-checked with management and can confirm that we won’t be using the company reserve tokens for daily interest. Those tokens have not yet been allocated for a specific purpose and there aren’t any plans to use them at this stage, so we’re not quite at the point where we’re thinking about a buy-and-burn mechanism either.

Why is the vote only open for 24 hours? This means Nexo expects more than 2/3 of their token holders to be available to vote within a 24 hour period.

I’ll start with the 24-hour voting period. It is a short amount of time, I agree, but it is enough to allow holders in all time zones to vote. Also, blockchain governance proposals don’t typically stay open for more than a few days. This is why we’re giving the community 10 days to go over the proposal and make their decision before opening the vote, so there’s plenty of time to think things through. Of course, if we see that the vote being open for 24 hours just isn’t enough, we’ll take note and extend it for the next proposal.

Either way, there is a quorum of 300,000,000 votes, so if enough votes don’t pile in by June 8 no changes will be made to Nexo.

How did Nexo come up with the quorum of 300,000,000 tokens? The community feels like this makes the vote seem rigged considering there are 560,000,000 tokens in circulation.

The reasoning behind this exact quorum is that it constitutes more than half of the tokens in the circulating supply, which in turn ensures that more than half of our community has to participate in the governance process for a change to be made. I think the main concern about the “vote being rigged” has to do with whether our team will be voting. We won’t be, see the next question where I explain that part 👇.

Will the Nexo team be voting? If yes, then isn’t the vote already decided because there is a large number of tokens held by your team? We know Antoni said he wouldn’t vote, but will the rest of the team be participating?

I’ve seen a lot of you guys stressing about the vote being rigged because of the sheer amount of tokens that the Nexo team holds. I can confirm that Nexo management – who understandably have substantial NEXO holdings – won’t be allowed to vote, but employees who have tokens can do so if they wish.

Our management’s participation in this decision would defeat the entire purpose of the NEXO Governance Vote. The NEXO Token began climbing the price charts on CoinMarketCap around the time we started Nexonomics and implementing upgrades, features, and adding to our product lineup, which goes to show that our token’s utility and the quality of our products contribute considerably to driving the price up. To help further raise the token price and boost our business, we need to create products that the public really wants and that’s why we’re having a Governance Vote – to see what the majority of our token holders want, so that we can maximize the success of our platform.

If Nexo’s management participates in such a vote it wouldn’t give us a clear idea of what clients want and need. As for Nexo employees, many of whom do have NEXO Tokens – they will be permitted to vote using their personal tokens as and if they see fit, since they too are users on our platform. Furthermore, employees who have NEXO vesting from the company will be able to vote using only already vested tokens.

The higher the price of the NEXO Token, the more unsustainable 12% daily interest seems to be as buying back the tokens from the open market would be unfeasible. How does Nexo plan to deal with this?

First thing’s first – our financial team and management spent a lot of time assessing the various scenarios for our profit growth, obviously taking into account market conditions good and bad, and they’ve concluded that 12% is a sustainable rate for the foreseeable future. I, of course, understand that your concerns are that the “foreseeable future” is a potentially short and indefinite amount of time, but we can’t predict how things will stand after that. At the end of the day, this is how all financial companies function: They figure out how to offer the most competitive possible rates in any given market circumstances.

As for the daily interest payouts becoming more expensive for Nexo as the token’s price rises, keep in mind that the same is true for dividends. As the company grows and profits more, the amount we share with our token holders also increases proportionally. Daily Interest on NEXO Tokens reflects this in the same way: As the company grows and the token grows with it, the funds delegated to payouts on NEXO Tokens will also grow at an equal pace. The key difference is the form through which investors receive these returns.

Is there any chance Nexo could guarantee the 7-12% earning rates on the NEXO Token for a certain number of months? The community is concerned that the rates will be dropped not long after the vote has passed.

Unfortunately, when markets are concerned there are no guarantees. The rates at Nexo are as high as the business can possibly afford in the current market conditions. If circumstances change, our rates will also have to be altered to retain the sustainability of our business. I would imagine that if we did drop rates rapidly, many of our clients would sell off their tokens and move their assets off our platform and to other competitors’, who would have better yields. We’d lose business very quickly, so naturally our goal would be to keep the initial rates or raise them as long as market conditions allow.

Is Nexo betting against the token appreciating over time with the Daily Interest proposal?

No, that wouldn’t make sense for us as a company, nor for our founders and employees, who all hold NEXO Tokens. We’d all be losing money if we did that. I would personally lose money. The biggest stimulus behind us (the Nexo team and management) holding NEXO Tokens is that it stimulates us to work towards the appreciation of our token’s price, which grows both the company’s and our personal funds.

If Daily Interest on NEXO Tokens is accepted, will there ever be a chance to vote on this topic again in the future, let’s say, next year? Will Nexo dividends be gone forever or could they be voted back in?

In the event that the proposal is accepted, I don’t think we’ll be revisiting dividends. At least not for a very significant amount of time. It’s not something we’re planning because the Nexo team is geared towards making long-term changes and decisions.

Personally, I think that constantly shifting between two different systems isn’t good for our tokenomics and it’s also bad for our investors. No one would want that – we need a system that you can count on to be there every day, not a platform where the conditions change too often. So, no, we won’t be voting on a dividends proposal. Sorry if that’s disappointing.

Will US clients be able to take full advantage of the Daily Interest on NEXO Tokens benefits? Will they be able to earn the 7-12% interest on NEXO and will it be paid in NEXO? How will this be possible, given that earning in NEXO with the current Dividends program in place is not permitted?

It’s great that this question came up enough for me to be able to include it in this post – it’s really important and I think a lot of people never fully understood why we’ve been so careful about paying our US customers any sort of rewards in NEXO Tokens. Here goes:

As it stands with the existing Dividends program, the NEXO Token is/could be classified in the US as a security and that label carries a lot of very strict regulations for what we can and can’t do with NEXO Tokens in the States. Dividends were the reason we haven’t been able to offer our token in the US – it couldn’t be listed on large exchanges like Coinbase for example, and US clients had to receive their dividend payout in BTC. It is also much harder for US clients to purchase NEXO Tokens. We’re very strict about complying with local regulations and in this specific case, the Dividends program was what classified us as a security in the US.

Now for the positive part: Paying out daily interest on the NEXO Token doesn’t qualify our token as a security. It then becomes more of a utility token. Since Daily Interest on NEXO Tokens would replace Dividends if it is voted in, US clients will be 100% eligible to receive daily interest on NEXO Tokens, paid out in NEXO Tokens. That’s because we’d no longer be subject to the same regulations and we will finally be able to offer our American clients all the benefits of our token.

What NEXO features are becoming available in the US?
What we are still working on offering in the United States is our Earn in NEXO option. To avoid any confusion: If you’re in the US, you will earn interest on NEXO Tokens in NEXO (unless you are in the State of New York), but you won’t be able to receive interest payouts for other assets in NEXO Tokens just yet. Another feature that won’t be available to US clients is the option to buy NEXO Tokens via the Nexo Exchange. We’re working on getting these features to you guys, but we can’t release them with the Daily Interest on NEXO Tokens as they require further definition of our token’s regulatory status. Our team is already working in this direction and we hope to have positive news for you soon.

Is the ultimate goal of this vote to remove the “security” aspect of the token and convert it into a utility token, thus eliminating roadblocks such as exchange listings, and allowing US customers to purchase the token directly and use the Earn in NEXO feature?

Yes, that’s definitely one of the huge potential pros to this proposal. I’ve also listed it among the pros section below. Our token has been doing famously since we launched Nexonomics, but the more liquidity the better, and that’s hard to achieve when we’re not listed on big exchanges like Binance and Coinbase. If Daily Interest on NEXO Tokens is accepted, this changes the way regulators would classify our token and we can start working on getting it on bigger exchanges, which would, of course, enable US clients to purchase NEXO Tokens directly and use the Earn in NEXO opt-in.

How soon is Nexo going to get the NEXO Token listed on big exchanges?

Since we don’t know the outcome of the vote, we haven’t started working on the “bigger exchanges” angle quite yet, sо I don’t have a timeline for you. We have to wait and see if the vote goes through to know whether to start working on this, we don’t want to be wasting time in case the community decides to stick with dividends.

If the Daily Interest proposal is rejected, is there a possibility of a new Governance Vote for more frequent dividends?

It’s not out of the question, but I highly doubt it. Our experience has taught us that our initial plan of monthly dividends is currently difficult to implement which is why we’ve committed to paying out dividends at least once a year. Believe me when I say a lot of work, checks and synchronization goes into determining and distributing dividends. It’s not a simple process for us especially when we’re growing so fast. Even just finalizing the final dividend amount for the current Governance proposal did not happen overnight.

Overall, although I’m 100% sure that our Governance capability can be used for such a proposal, I don’t see it happening in the foreseeable future. I can tell you from what I’m seeing internally that the team’s priorities are elsewhere.

If the vote goes through, and dividends are no longer a part of the NEXO Token’s makeup, what are Nexo’s plans to secure the growth of the token and its tokenomics? There are many ways Nexo could add utility to the tokens, for instance, giving discounts based on loyalty to the Nexo Exchange rates.

At the risk of ruining some of our future announcements, I know that integrating the Loyalty Program into the Nexo Exchange is something that we are already working on, though I cannot give any further details. It would work the same way as it does for our Earn suite and Instant Crypto Credit Lines™, where you would get preferential rates and perks depending on which tier you’re in.

We’re also continuing with Nexonomics. I took the liberty of asking around the product department and I can give you a little sneak peek: Expect a new Nexonomics release real soon after the Governance Vote.

One more thing, the community is highly focused on the Daily Interest vs. Dividends dilemma, which is great – it’s nice to see people really engaging with this important proposal. Yet in focusing on this first proposal we kind of forget that the Governance Vote itself was also a key Nexonomics reveal and a new feature for the NEXO Token. It’s also a pretty innovative one, which applies DeFi features to CeFi.

2. Benefits of Daily Interest on NEXO Tokens

  • NEXO Token holders will receive up to 12% interest per annum, paid out daily, on NEXO Tokens held in both the Savings and Credit Line wallets. NEXO Tokens used as collateral will also earn interest.
  • Daily Interest on NEXO Tokens will start with 7% interest for FLEX Terms across all Loyalty tiers, while those benefiting from Nexo’s Fixed Terms for 3 or 12 months will receive 9% and 12% interest, respectively.
  • Daily interest payouts on NEXO make passive income from our token more predictable than dividends, giving token holders more stability and flexibility with their funds.
  • With the new proposal, the NEXO Token's regulatory status in the US will change, clearing the way for all US clients to be eligible for Daily Interest on NEXO and allowing us to list the token on bigger exchanges. 1
  • NEXO price volatility and token dumps are expected to decrease with consistent payouts over once-a-year reward distributions.
  • A final Dividend distribution of $20,428,359.89 will be made should Daily Interest on NEXO Tokens be chosen by the community.

3. Benefits of Dividends

  • 30% of Nexo’s profits are distributed to NEXO Token holders in the form of dividends.
  • Dividend distributions are guaranteed to take place at least once a year.
  • Special Bonus Dividends are also available during some Dividend distributions, allowing investors to lock assets in their NEXO accounts and receive more in dividends.
  • Token holders receive dividends directly in NEXO Tokens or, if they are US citizens in BTC or another asset depending on each distribution.
  • As Nexo’s profits increase over the years, dividends payments will increase proportionally.
  • Each dividend is split into Base and Loyalty Dividends with the latter designed to benefit loyal NEXO Tokens holders who hold their tokens in Nexo accounts long-term.

1 Currently excluded from this product are citizens or residents of the State of New York, and users subject to other limitations as may be applicable at times, who place their NEXO Tokens in their Nexo accounts. The Daily Interest on NEXO Tokens is subject to the Nexo Earn Interest Product General Terms and Conditions, as amended on occasion.

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