This month we dedicated our monthly AMA session to ensuring our clients feel informed about recent company news and to share some of our plans for the exciting future that lies ahead. Check out the key messages and recap of our Co-founders and Managing Partners Antoni Trenchev and Kalin Metodiev addressing your questions and concerns in our October AMA.
Key Facts & Messages
- Our exclusivity period for the acquisition of Vauld has been extended. Our conversations on an executive level at Vauld are going very well.
- Nexo’s recent WBTC transactions on MakerDAO are business-as-usual operational transfers for a large-scale lending institution – this is simply collateral going from a DeFi protocol back into Nexo’s accounts.
- In February when the SEC pronounced its stance regarding interest-bearing products in the US, Nexo was the first company to follow its instructions.
- Nexo is in constant contact with the numerous US state-level regulators that recently contacted us and our team and advisers are working on several fronts to deliver a compliant Earn product for the US.
- State regulators’ statements that without the NEXO Token Nexo’s liabilities would exceed assets, are not correct as the data used for this conclusion is from a snapshot of assets pertaining to but one entity from the entire Nexo group.
- Our stake in Summit National Bank will enable Nexo to offer US retail and institutional clients bank accounts, asset-backed loans, card programs, as well as escrow, and custodial solutions as we work toward offering full commercial banking capabilities.
- We believe in, aspire to, and work hard to deliver a sustainable financial future that blends Nexo’s strong capabilities in the blockchain space and more traditional services.
Is the recent WBTC withdrawal from MakerDAO just an operational transfer between Nexo accounts and nothing to be worried about?
Yes, this is indeed an operational transfer.
We are a lending company and as such we source funds from the market – more specifically, from our user base, wholesale institutions, and liquidity providers. We also utilize capabilities provided by the DeFi sector.
The funds in question were being used as collateral on a popular DeFi platform against which Nexo had obtained a loan as an institution. This loan was repaid, and once the repayment was made, we naturally withdrew our collateral in the same transaction. Essentially what you’re seeing is the collateral going from the DeFi protocol back into Nexo’s account. We make such transactions on a regular basis and it’s business as usual for Nexo.
Regulators from eight US states filed a cease and desist order against Nexo. How much could this impact Nexo's business?
Regulators have recently taken an interest in how Nexo’s business functions. In mid-February this year the SEC pronounced itself with regards to how Earn products need to be structured in order for a crypto lender to be able to offer them in the US – this event is commonly referred to as the BlockFi order. As soon as the BlockFi order came out, Nexo stopped onboarding new clients to our Earn product in the US and existing clients could only earn on balances that were already on the platform prior to the order. This was the guidance provided by the SEC until further notice. We were the first, and for a long time the only ones, who stepped up and followed the regulators’ instructions.
With regards to the eight state-specific cease and desist letters: Nexo’s discussions with the SEC are regulatory conversations that take place on a federal level. Aside from these federal level talks, we are also having discussions on a state level. It’s effectively an ongoing process on two parallel regulatory pathways. When the news of the eight letters came out on September 26, our US law firms were already in contact with the various regulators, working to centralize the conversation – possibly by organizing a committee – so that we don’t have to speak with every state regulator separately and to figure the situation out as soon as possible. This effort is ongoing and applies both to what has happened over the previous years and for our future operations in the US.
The good news is that the regulators want this product to be available in the States and right now they are simply stepping up their game with regard to investor protections. What these protections could look like is still unclear. They could mean S1 forms, they could mean that Earn offerings will have to be made through a broker-dealer or a bank, or provided under regulatory exemptions. Whatever regulators decide, rest assured that Nexo is in constant contact with these entities and is working on several fronts simultaneously because we want to be the first out of the gates to deliver a fully compliant Earn product for the US.
How would you comment on the FUD around the NEXO Token due to statements from state regulators?
There was a statement issued by a few US state regulators that claims the net position in NEXO Tokens Nexo holds is what makes our assets exceed liabilities. The regulator used data that we ourselves provided to them in a snapshot of one of the entities of the Nexo Group. However, the snapshot only portrayed assets of a single Nexo entity. Had they assessed all the entities on the group level – or in other words looked at the assets of all the Nexo entities – they would see that they exceed liabilities even if you take out the net position of the NEXO Token. Another important nuance is that the NEXO Token in relation to the total assets of the Nexo Group is less than 10%.
Any updates on the Vauld acquisition? Doesn’t your exclusivity expire this week?
Our exclusivity with Vauld was meant to expire in the week commencing October 3, 2022, but we are happy to share that this exclusivity has been extended. More information on the new exclusivity period will be announced to our community in the weeks to come. Our conversations on an executive level at Vauld are going very well.
Insolvency and bankruptcy are what is being said about Nexo. Are you the next Celsius and Voyager?
Insolvency and bankruptcy are nowhere in Nexo’s reality. We believe in, aspire to, and work hard to deliver a sustainable future with a rich set of services and solutions that blend Nexo’s strong capabilities in the blockchain space and more traditional services.
This is because we have since day one provided a long-term sustainable business model, for borrowing, earning interest on our platform, and more recently, for our trading capabilities. For us, risk management is always of the utmost importance which is why we rely on our stringent overcollateralization, real-time audit of our assets under management, $775M insurance on custodial assets, as well as collaborations with trusted parties such as Mastercard, Fidelity Digital Assets, and others.
Furthermore, unlike other players in the space, Nexo had no exposure to the Terra/LUNA collapse and was not among the many companies that made uncollateralized loans to Three Arrows Capital prior to its bankruptcy – a fact that can be verified through public information released on the latter matter.
Congratulations on your stake in a US bank! How will that impact the growth options for Nexo in the US?
Since day one, our ambition at Nexo has been to provide every single financial service a client might need – wallets, borrowing, lending, trading you name it – under one roof. That said, all of our cutting-edge products need to be complemented by the provision of traditional banking services which is what our stake in Summit National Bank can help us achieve. The US market is very important to us and we aspire to provide the best possible service to our US-based customers. Our acquisition of a stake in a US bank is a part of this process.
Nexo’s road toward commercial banking capabilities is far from over and we are committed to adding further licenses around the world that will give us global coverage for the provision of banking services. We hope to update our community with further news on this topic very soon.
The real-time audit is a great first step to transparency, but are there any plans to get a full audit?
The greatest test of transparency and resilience is something Nexo has proven it can withstand through the numerous volatile periods over the years. Our business, products, and our commitment to transparency – for example, the way we conduct the NEXO Token Buyback updates – have been delivered always, irrespective of the whims of the market.
As for when the next step from real-time attestation to full audit is coming: This ties in with our aforementioned efforts of growing our company not just in size, but also in terms of capabilities. A complete set of audited financials is not only something Nexo aspires to, it’s something we need to ensure so that we can leverage new opportunities be they to help struggling companies in the space with funding and a strategic layer of services, or to obtain funding for our future innovation and entrance into new niches. To be granted this kind of funding, we need this next-level degree of transparency. Thus, growing into a full audit is a natural continuation of this process and is in the long-term pipeline for Nexo.