Within the span of a week, I came across a couple of different articles in regards to Nexo.io and their platform, and I didn’t think too much about it until I began seeing more influencers and tweets about how Nexo was destined to become the next Celsius or Voyager. I don’t blame people for thinking that everyone is out to rug them, especially after stories coming out about how Celsius’ CEO Alex Mashinsky allegedly withdrew $10 million prior to declaring bankruptcy or when one of the world’s largest banks seems to be in financial trouble.

In addition having had tokens frozen in both Celsius and Voyager, the last thing I wanted to happen is to go for a hat trick and get my funds locked up in Nexo as well too. Therefore, I thought it best to do a deep dive in order to see how much of the rumors were legitimate versus how much more was simple FUD.

So why has Nexo been in the news?

Item # 1: Nexo was being sued by several states for selling “unqualified securities” through its Earn Interest Product.

If you’ve been a long-time member of Nexo, you’ll know that back in February, Nexo made significant changes to their “Earn Interest Product” for U.S. investors so that existing users could no longer opt to earn boosted yields on their cryptocurrencies through the $NEXO token and that new users (or existing users’ top-ups) wouldn’t be able to earn interest on their cryptocurrencies. The primary reason for these changes were done to preemptively sidestep warnings and lawsuits that were being filed at the time against BlockFi for offering interest for their customers. Regardless of these changes, apparently Nexo is still being targeted for offering unregulated products to consumers, or according to the NY Attorney General’s office:

“Cryptocurrency platforms are not exceptional; they must register to operate just like other investment platforms,” James said in a statement. “Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”

So the allegations against them appear pretty general — that operating unregulated in itself is why these lawsuits are being filed.

My take: This really doesn’t come as a surprise to me, especially after the collapses of Voyager and Celsius. After so many average retailers getting rekt, I think it was only a matter of time before the government was going to step in to try to protect consumers from those “risky crypto scams.” In other words, I think in the big picture it’s only a matter of time before the SEC or other governing bodies are going to try to regulate different centralized platforms — an action that could be bad (or good if you’re optimistic) about how these regulations are crafted. And I don’t think the fact that Nexo is being sued inherently makes Nexo bad, if anything I think that it was just a matter of time that Nexo, being one of the largest centralized lending/yield bearing cryptocurrency platforms left out there, before it was bound to be in the crosshairs of regulators.

Item #2: Nexo is insolvent

This item is in reference to an article that came out a couple days later by Dirty Bubble media that highlighted a claim from the State of Kentucky that highlighted issues with the $NEXO token itself, in that:

As of July 31, 2022, Nexo Capital (which conducts the business of Nexo on its website and move application) held 959,089,286 in NEXO tokens, comprising 95.9% of all tokens in existence, and valued those tokens at $682,823,570.

Excluding Nexo Capital’s net position in NEXO, Nexo Capital’s liabilities would exceed its assets.

The article goes on to assert that the true value of $NEXO is close to zero, and that the $NEXO token, just like Celsius’ $CEL token, when factored out of their balance sheet essentially points to possible insolvency.

My Take: I was certainly alarmed by this at first, but there’s a couple of things I read that made me think twice about this accusation, because honestly you could make the same claim against the native coin of almost any major platform out there, especially one that has utility for the platform in itself.

There are many native platform tokens out there, including $KCS, $BNB, $CRO, $MIDAS, $GMX that offer users of the platform certain benefits such as booster rewards, trade discounts, liquidation fees, etc. The token’s utility incentivizes users to hold the token on the platform, rather on their private wallets. In other words, if holding more of token $X allows me to earn boosted yield rates, then there would be no point in me holding it in anywhere else besides the platform that’s going to provide me with the boosted rate. And because everything is transparently on the blockchain, you can easily see how much of each respective token is being held in which wallets of which respective platforms. Take KuCoin’s native token $KCS for instance:

Approximately 97.3% of tokens are held in just 3 different wallets — all 3 known to be different KuCoin wallets. Or let’s go even bigger to $BNB, the native token for Binance:

Approximately 83.68% of all $BNB tokens are held in just 3 different wallets — all known to belong to Binance itself.

Is it good that so many tokens are held in such few wallets? Probably not, but I don’t think that the fact that when most tokens are concentrated on platform wallets necessarily means that the token itself is worthless.

A second piece I looked at was the newly updated report done by the auditing company Armanino dated October 3rd, 2022. In this report, they explicitly state:

Armanino obtains the USD-equivalent value of customer liabilities directly from Nexo via API. Armanino recalculates the USD-equivalent value of Nexo’s Assets using the spot digital asset prices and foreign exchange rates as of the time of this report. Customer Liabilities as of October 03, 2022 are $3,634,584,011 and Nexo’s Assets exceed its Customer Liabilities. Results of the procedures are presented in “Findings & Results.”

On the surface level this is a positive sign, my only qualm about this is the report indicates funds were tallied at what appears to be an agreed upon snapshot time. I would have more confidence in Nexo’s financials if Armanino performed this snapshot randomly and if they did more than a snapshot — say look into a historical list of transactions to see money in-flows and out-flows.

Regardless, I don’t think Dirty Bubble Media can say a token is worthless anymore than I myself could say $DOGE is worthless —only the general markets can say how much $NEXO is worth, and right now, it’s not worth $0:

Conclusion

With decent returns and a complete lack of transparency on Celsius and Voyager’s part, I completely understand why there’s so much FUD around many different CeFi platforms, or really anything that generates a decent yield (#realyield). So it comes as to no surprise that there are so many out there that are saying the writing is on the wall for Nexo, as it appears with the lawsuits they have just one more thing in common with their delinquent brothers.

However through everything I’ve read, there hasn’t really been anything substantial that I’ve found that says that Nexo is at that same type of risk, and furthermore, it appears that they gone above and beyond to give greater transparency for their customers. Could I be wrong? Absolutely. But for me, I can’t see any writing on the wall, at least not yet.

Interested in finding out more? If you’re a Nexo user and you’re still feeling unsettled after all of this, I’d recommend that you tune into their upcoming AMA via Youtube — you can even submit questions before hand if you have something specific you’d like to ask. Otherwise if you’re not a Nexo user but you’re interested in checking out, consider opening up a free account using my referral link: https://nexo.io/ref/i4st7plsny?src=web-link, we’ll both get $25 worth of $BTC after you’re first deposit of at least $100 dollars worth of crypto.

Thanks for reading, and as always, please be sure to follow me on twitter to read all about my latest findings and updates: https://twitter.com/CryptosWith

Disclaimer: None of this information is financial advice, and is just speculation from me, a random guy on the internet. Please consider this for purely educational and entertainment purposes. As always, please do your own research or contact a financial advisor to find what investments might be best for you.