History does not repeat itself, but it often rhymes is a saying eerily applicable to what is happening right now in the crypto space – a bearish frenzy not all too dissimilar to the many storms the traditional financial industry has weathered over its centenarian existence. The dynamic today, although translated into a world of cryptocurrencies and blockchain technology, more or less mimics various crises in history, in this case, the Banks’ Panic of 1907. If we take a page directly from the outcome of the early 1900s, a natural solution to crypto’s current predicament is a large-scale consolidation of the space, one which Nexo is prepared to engage in to restore public confidence and aid adversely affected investors.
Some Context: the Panic of
Back in 1907, a series of questionable banking decisions, along with an attempt to corner the stock of United Copper Company gone wrong, triggered a cascade of runs on a number of banks and trusts in the US, and, in the final stage of the panic, the near insolvency of brokerage house Moore & Schley due to exposure to Tennessee Coal, Iron and Railroad Company stock. In the absence of a central bank and to quell a complete collapse of the economy, J.P. Morgan, New York’s most prominent financier, gathered a consortium of solvent bankers and orchestrated a bailout for the multitude of insolvent entities.
In parallel, our modern “panic” catalyst was the de-pegging of UST, the collapse of the entire Terra ecosystem, and the echoing volatility that came subsequently. Just like at the start of the 20th century, the collateral damage we know today as “FUD” transferred to other platforms and providers resulting in a liquidity crunch and some crypto lenders halting client withdrawals. Adding fuel to the flame, and in an occurrence vaguely reminiscent of the implosion of Long Term Capital Management in 1998, Three Arrows Capital (3AC), the biggest crypto hedge fund, found itself unable to meet its obligations, many of which were owed to the same aforementioned crypto lenders (Nexo has confirmed that it has $0 exposure to 3AC).
To further the historical analogy, per J.P. Morgan, “ruinous competition” was to blame for the financial turmoil in 1907. A similar cutthroat race for the highest yields in crypto lending led many a business down the rabbit hole of risky DeFi strategies and the inception of a web of uncollateralized loans that now cripple the space.
A Consolidation of the Crypto Space
While many are ready to name the mass solvency issues a Lehman moment, this is hardly accurate since, as for the US banks and trusts in 1907, there is no central bank, no Federal Reserve, and hence no lender of last resort to inject liquidity. It is once again up to the remaining players – those with sound finances and sustainable models, not so easily rattled by volatility – to come up with a relief plan, just like the charge led by J.P Morgan over a century ago.
In light of all this, the crypto space is about to enter a phase of mass consolidation which has already begun with the remaining solvent players, like Nexo, expressing their readiness to acquire the assets of companies with solvency issues in order to supply immediate liquidity to their clients and relief to the entire industry. As a leader in blockchain-based finance, our team feels an obligation to the crypto community and, most importantly, to the retail investors that would be hardest hit by this panic. Our drive to protect investors goes deeper than words as we have, from the very first signs of trouble in early June, begun conversations about possible relief plans:
- Offers to Help with Liquidity: Nexo has reached out to several companies with certain aspects of lending operations in current need of liquidity and offered to alleviate financial pressure through a number of different options. For instance, Nexo is in a position to deliver crucial liquidity by directly refinancing collateralized loan exposures, acquiring certain assets, engaging in asset swaps, etc.
One example would be Nexo’s official Letter of Intent submitted to Celsius Network. In this case, we exceptionally chose to go public, as this was the first instance of a withdrawals freeze and we felt that publicity might help persuade management to act decisively.
- Hiring Top-Tier Financial Advisors: Nexo is working with several investment banks to ensure we receive best-in-class advice on all acquisitions and liquidity restructuring deals so that the investors with blocked assets across troubled platforms can regain access to their funds as quickly as possible. This goes a long way towards restoring trust in the system and Nexo’s strong financial position allows us to be committed to doing our part in it.
- We Are in This Together. All of Us: Following the public statement of our readiness to help stabilize the industry, Nexo is now in ongoing talks with other big crypto companies for the development of a larger relief plan for the blockchain space. As the situation is both dynamic and sensitive, we will update you as soon as possible.
How Nexo Remains Resilient Amidst the Current Volatility & Insolvency Within the Industry
Panic is arguably the worst advisor. However, you will be forgiven if you have submitted to this emotion recently. Both traditional and crypto markets are deep in bear market territory and red has been the predominant color on trading screens for a while now. The world’s central banks are withdrawing liquidity and hiking interest rates, something the younger generation has perhaps never imagined possible. It is important for Nexo that our clients understand how the company is different from the vast majority of blockchain companies, why we are able to remain in a comfortable position to help others, despite volatility, and what mechanisms are in place to protect their funds, so here are the key takeaways:
The pillars of Nexo’s robust business model and the security of your funds lie in the fundamental principles in finance and blockchain, namely: collateralized lending, insurance, fully-automated processes, worldwide licensing, prudent risk management, and a real-time audit of reserves.
- Nexo has always had a sustainable business model which has relied on strict collateralization requirements, automation, and prudent risk management from day 1 – The Nexo team has always put in significant efforts to run a self-sustainable and profitable business. And has succeeded. We have refused to engage in the industry-wide practice of under- and un-collateralized lending, which now pays off in unmatched stability during this latest turmoil and zero exposure to the collapse of Terra, 3AC, and high-risk DeFi strategies.
- We are the first and only blockchain finance company to have a real-time audit of its custodial assets – Nexo and the auditors at Armanino LLP have pioneered a solution to show, in real-time, that Nexo is liquid and can meet all of its obligations to clients at all times. Furthermore, we have challenged other providers to do the same.
- Solid liquidity and financial stability – Nexo’s savvy business operations have enabled it to build up a comfortable equity buffer that allows the company to operate confidently even in a prolonged market downturn.
- $775,000,000 insurance on custodial assets – Through custody partners such as BitGo, Ledger Vault, Bakkt, among others, Nexo has a comprehensive network of custody and insurance providers. Collectively, they carry $775M in insurance protections for digital assets held in custody via the most prestigious underwriters, including Lloyd’s of London, and Marsh and Arch.
- Fully automated systems to protect clients – Nexo’s sophisticated algorithms protect all Nexo clients equally, whether you are a borrower or lender, and have been stress tested in the past four years like no other. We are happy to confirm that Nexo has never lost a dollar, even in the sharpest market downturns in 2018, 2020, 2021, and 2022.
- Best-in-class security, no hacks – Nexo takes the security of its platform with the utmost seriousness as we are handling your money. We are the only crypto lender that has never been hacked and has never lost client funds or clients’ data - a track record that speaks for itself.
- 40+ licenses and registrations across the globe – Nexo has gone the extra mile in ensuring compliance with the applicable regulatory frameworks together with its top-tier legal counsel and engaging proactively with the regulatory decision-makers.
- The trusted crypto partner for the established institutions – MasterCard and Fidelity are amongst the household names that have chosen Nexo as their partner gateway for access to the crypto markets which showcases Nexo's solid position in the rapidly digitizing world and exemplary company practices subject to due diligence by our partners.
In these volatile times, Nexo remains your steadfast partner and will provide you with the most stable and reliable services in the blockchain ecosystem so that you can manage your finances as you desire and see fit. Whatever tomorrow might bring, we are unflinchingly executing our roadmap and yet again exceeding expectations in bringing products for the betterment of the community’s financial freedom. With prudent risk management, a sustainable and profitable business model that works in both up and down cycles and a penchant for platform excellence, Nexo has stood the test of time and is a beacon of stability.
Now, in these uncertain times, Nexo is poised to play a key role in the upcoming consolidation of the blockchain space. Our hope is that we are able to protect as many investors as possible and maintain people’s faith in crypto as our industry is only just beginning to unfold its true potential.