If you are earning interest in Nexo or if you are planning to invest to get interest on your crypto/Fiat with Nexo. Be aware of the tricks Nexo is playing. 

What is Nexo

Nexo is a crypto deposit-Lending platform. (I have never used their Lending platform. I am still finding trust in the deposit system). Users can deposit crypto coins and tokens and earn interest in those deposits. 

As I have not used the lending/borrowing features, so I am not going to review that. What I understand is that the user can get instant loans (a percentage of your deposit). So if you don't want to lose your crypto holding and use them for something else it is a good idea to borrow from Nexo.

Nexo has been around since 2018.  They have some nice security features and it is insured too. So I think in that aspect I can trust them. 

Nexo deposits

Currently, Nexo supports below listed currencies. The user has two options to choose from

• Earn in-kind
  Earn the interest in the same crypto as the deposited crypto.

• Earn in NEXO
  Nexo is the native token of the platform if the user chose to earn the interest in NEXO the interest rate is 2% higher. It is about the risk the user takes against the price value of Nexo. For example, if the price of ETH vs NEXO grows more than 2% it is a gain to earn in NEXO. As a user, we have only one option either earn interest in all of the deposits in its own kind or in Nexo. We cannot choose which assets we can have this choice. Which I feel is a bit odd. Nexo customer care told me that they have a plan to introduce this in the future but not any time in the near future. 
  
  

You may notice a few things in the list. You can get 12% interest on USD, Euro, and GBP. 

Note these rates are the maximum you can get. The interest rates are depending on how much NEXO you hold in their platform. 

These are the levels:

So if the user doesn't hold any Nexo and deposits Euro the interest is 4%. 6% if it is in Nexo. (I am not sure about the governance part. May be I need to read the whitepaper)

Fixed Term

If the user locks the crypto/asset for a Month the interest rate is 1% higher.  I cannot find this anywhere in the documents. But I understand from the customer care that in fixed-term: the user is earning in NEXO it is not compounding. So if someone wants to use the fixed term consider this too. Most of the time compounding is better than 2% extra. 

Nexo Exchange

The user can exchange between the cryptos within nexo. But my research shows that the rates are pretty high. Maybe if we consider the transaction fees to deposit in Nexo platform it may be better to do the exchange in Nexo. But as a regular exchange, I won't suggest using Nexo. 

The Dirty trick from Nexo's Compounding interest rate

This is the reason I am writing this post. Even though all in all, I like the idea of Nexo. I have a problem with how they calculate the interest rate. 

Nexo claims what they are paying the user is Compounding interest. This is a screenshot of the site today. 

Nexo is paying 20% interest that is all. they are not paying 20% compounding interest. If you keep your asset at the same rate(20%) for a year your asset will be increased by 20%. They are adding the interest daily. Which is completely different from the 20% Compound interest rate. 20% compound interest means you will get 20% interest and the interest earned will be added to the asset every day(depends upon how you compund).  I have presented an example table below.

If it is a compounding interest it should be calculated using the compounding interest calculation formulas. More information here(https://en.wikipedia.org/wiki/Compound_interest#Periodic_compounding). It is not that complicated. :) To understand the trick Nexo playing to confuse the users you may not need to understand the formula. 

What Nexo is doing is the user will earn this much percentage with compounding(compounding for nexo means the user will get the interest daily).

To make it clear: in my investment I am getting 15% interest (screenshot from  nexo's dashboard ): 

You are not getting 15% compound interest. Your asset will be increased by 15% in a year. That is what Nexo means here. There is a huge difference between those two statements. 

For example, let say you have 1000Avax and you get 15% Compound interest(in human terms, not Nexo terms) at the end of the year you should have 1161 not 1150.

The danger is that we use compound interest everywhere with the same formula except in Nexos. For example, if you borrow the same asset from some other source for 14% you will be in big danger at the end of the year. You may be thinking I am earning 1%. But the truth is that you are losing a lot of money.

You may have to try other sources also which one is better for you as a passive income to earn.

For example, Nexo gives 17% interest on Dot. Which is much much much lower than the 12% compound interest you get on Kraken or many of the staking pools.

Here is the list of rewards from Kraken:

Kraken compound the interest twice-weekly(not daily as Nexo). But they use the proper compounding formula.  

Still, you think this is a good deal, create an account and try nexo

Update:

I have made some mistakes in the numbers(not a small mistake). Look at the comment from Lichties below.