Nexo's First Governance Vote

Though Nexo's addition of a governance function to their native token has been teased for some time now, the first item coming up for a vote may be coming as part of a surprise; Replacing Nexo's Dividend system for daily interest payments just like any other coin/token the fintech lending company accepts.

For those unfamiliar with Nexo, a bit of background. Since 2018 Nexo has paid out 30% of their net profits per year as a dividend to those who staked the token on their platform, with the payout based on how many NEXO the holder has as well as how long they've had them staked since the last dividend. To date Nexo has paid out around $9,500,000 to holders over the past three years.

These payments may be eliminated, however, as Nexo has put up a proposal to change how NEXO would provide holders with passive income due to community requests. Right now, the major daily benefit to holding NEXO in your account would be to qualify for the various loyalty tiers that provide higher interest rates on crypto and fiat funds held in Nexo Savings accounts as well as lower interest rates for those taking out loans. If the suggested proposal were to go through those holding NEXO would now receive at least 7%, compounded daily, on their balances instead of the once yearly dividend. Those willing to lock up their holdings for three or 12 months could earn rates of 9% to 12% respectively. It should be noted that these rates, unlike the other possible holdings on Nexo, are not reliant on loyalty level.

Now, there are some immediate benefits to this change. With NEXO generating revenue on a daily basis there could be more demand for the token from those who had not previously considered making use of Nexo's platform, thereby driving up its price. For those who have already been holding NEXO to achieve higher loyalty levels and better rates on their savings, the daily payouts could help their NEXO holdings keep up with the interest earned on their other assets and maintain the holder's loyalty level. This could save the holder on transaction fees as they wouldn't have to purchase the token on exchanges or though credit processors.

While these are good arguments for users to vote for changing the dividend payments to daily interest ones, we should consider what would be lost.

In their announcement regarding this vote, Nexo declared that if the proposal went through a final dividend payment would be made of over $20.4 million to those holding NEXO on the platform on June 8th based on how long they've held their tokens on platform since the last dividend and are found eligible for the dividend.

Now you might have already noticed that this dividend is more than twice as much as the previous ones combined. If you've checked out the loan stats on Nexologist.com lately you've seen that Nexo's lending business has taken off in 2021, and that's just for USDT and USDC based loans. It's quite apparent business is booming for Nexo at this time, and while past performance does not guarantee future success we should consider the possibility that trading in this profit sharing for daily interest could result in earning less from NEXO holdings overall.

We should also consider that removing the dividend payments removes a quality that can set NEXO apart from other tokens out there and could reduce demand. There's also no guarantee that Nexo would increase the daily interest rate (which would currently equals the Platinum rate for standard cryptos if paid out in NEXO) as their profits potentially grew. You also may have some locations (the blog post has a footnote referencing the state of New York), that may not even be eligible for the daily interest payments.

I'll be honest; I'm really not sure which way I'll vote when the poll opens on June 7th. There are arguments for each position, thought if I had to guess I believe it's most likely than not the daily interest payments will win out. Quorum for the vote is 300 Million NEXO. While I don't see this being an issue, considering the vote will only be open for 24 hours and only tokens in a Nexo account count its entirely possible this vote may be rendered moot.

Nexo's Profitability

In announcing how much a final dividend might be, Nexo has also given us an idea of this last financial year's earnings from which we can draw some conclusions.

If we assume that 30% of their net profit equaled $20,428,359.89 then their total net profit for the year should be just under $68.1 million, not a bad take considering the volatility of the crypto market and their significant interest payouts. Taking into account a circulating supply of 560 million tokens, we can determine an earnings per (circulating) token of ~$0.1216.

At the time of this post, NEXO is averaging $2.33 on the open market. Dividing this by our earnings per token we get a P/E ratio of 19.16. This is a little bit high when compared to your average traditional stock but well within the range for newer companies in emerging fields. As an example Bank of America is currently running at a P/E of 17.99 while Tesla is at a whopping 623 right now.

As a company it seems like Nexo is set up well for long term success, which means NEXO should have good price support going forward even though we're already around 20x from its prices back in October of last year. With Nexo's buy back program still ongoing I can see the token approaching its previous highs of around $4 as long as we don't see any more Bitcoin crashes.