I have received many questions from friends but also from strangers regarding Nexo, one of which is: But how is it possible that Nexo offers returns of 14% on stablecoins, 5% on Bitcoin and 6% on Ethereum?
More than legitimate questions that I also asked myself years ago, questions that require in-depth analysis.
Nexo, founded in 2018, has a core business called "collateralized credit", it means that they offer users debt with cryptocurrencies deposited on the platform, with adequate ratios regardless of the customer (retail or institution).
Nexo's main services that make the company profitable are:
- Loans guaranteed by cryptocurrencies, margin and OTC (Over the Counter, a loan disbursed quickly and easily);
- EARN products
- Trading (spot, margin, futures etc...)
The interests generated by EARN products derive precisely from the loans made to customers, remembering that loans with higher APYs are subject to fixed terms (1-3-6-12 months based on the loyalty level which I spoke about it here https://www.publish0x.com/blogging-crypto/nexo-card-review-updated-october-2023-xoqmwqp) to maintain actual rates always below the theoretical maximum.
In essence, Nexo, on the cryptocurrencies that we put in EARN, guarantees us an APY that is always lower than the actual APY that it requests on loans, so as to be able to repay completely and be in profit, definable as SPREAD, one of the largest sources of profit in the platform.
So, in summary, Nexo profits from the difference between the % of EARN and the % of loans.
Speaking of loans, the interest rates, for those who request them, vary from 7.9% to 15.9%, despite being collateralized, always based on the loyalty level and the amount of money deposited.
A practical example at this point will certainly help you.
Let's take the basic loyalty level, which offers 8% APY on USDT and interest rates of 15.9%.
Mark invests 100k USDT on Nexo, with the possibility of obtaining an 8% income.
Jack wants to buy a car, he has deposited $200k in Bitcoin, but he doesn't want to sell it because he believes it can go up in value and he wants to get an immediate loan.
Jack, therefore, asks Nexo for a loan of $100k in USDT, putting his $200k in Bitcoin as collateral, with an interest rate of 15.9%.
Nexo gives the money requested by Jack who will buy the car and will have to return the 100k USDT + 15.9% which results in a total of 115.9k USDT.
Nexo, will now give Mark his 100k USDT deposit +8%, for a total of 108k USDT.
Nexo gained 7,900 USDT.
The company says it owns less than 10% of its equity in Nexo and has never used it as collateral to make loans (unlike FTX).
Additionally, platform users are incentivized to hold the token, to get higher APYs and lower loan interest rates.
Nexo had 0 exposure across all 2022 crashes, including FTX/Alameda, Genesis, Gemini, BlockFi, Luna/UST, Three Arrows Capital, Celsius, Babel, Hodlnaut and troubled crypto miners.
Furthermore, Nexo was born in 2018, the year of the bear market. The platform, therefore, survived two bear markets considering the recent one.
That said, all that glitters is not gold. In fact, I remember the absence of real-time audits, investors have no way to independently verify its assets and liabilities, here you can check more about it https://www.publish0x.com/blogging-crypto/nexo-we-have-a-problem-xzqwogk
On the page below you will find other important information about security and their business model
https://nexo.com/security#fundamentals
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