Nexo (NEXO): an overview of one of the leading lending platforms and its token
To make lending services more attractive, lending platforms issue tokens that grant their users various privileges and bonuses — the Nexo platform, which will be discussed in this article, is no exception.
What is Nexo?
Nexo is a centralized lending platform that allows users to lend and receive loans in cryptocurrencies against other digital assets.
The Nexo platform was created by the Bulgarian company Credissimo, founded in 2007. It was explicitly launched for crypto investors interested in providing or receiving loans in digital assets.
Like the token, the Nexo platform was launched in 2018, a period of cryptonym in the cryptocurrency market. TechCrunch founder Michael Arrington backed the launch.
Like many other cryptocurrency-related firms, Nexo was prosecuted in 2023, and the company's Bulgarian office was even searched by law enforcement authorities for suspected money laundering and tax crimes.
Nexo was later prosecuted by the U.S. Securities and Exchange Commission (SEC). After this, the company paid a $45 million fine and withdrew from the U.S. market. It. It also restricted the activities of its primary product under the name Earn in several countries, including the U.K.
As of May 2024, the Nexo platform operates in more than 200 jurisdictions worldwide and has already paid more than $800 million to users.
How does Nexo work?
On the Nexo platform, users can act as both lenders and borrowers. All loans are super-secured, which means that borrowers need to pledge more than the loan amount as collateral to get a loan, thus securing the funds provided by lenders.
The LTV, or Loan-to-Value, is the ratio of the loan amount to the amount of collateral. The higher the LTV, the greater the amount the borrower can receive. LTV depends on several factors, including the asset on which the borrower provides collateral. For example, if the LTV is 15%, the borrower will be able to receive no more than 15% of the value of the collateral.
However, this approach has certain risks. The thing is that LTV is a dynamic indicator, and if it grows to 100%, the pledge will be written off in favor of the lender. For example, a user has pledged $1000 in BTC and borrowed $700 in USDT stablecoin with an LTV of 70% (users can often set their own LTV within the allowed limits).
If the price of BTC drops by 30%, the LTV will increase to 100%, and the user's collateral will be automatically liquidated. To prevent this from happening, the user will need to increase the pledge size by such an amount that the LTV returns to 70%. It is also worth keeping in mind that LTV will continuously improve as interest for the loan is accrued.
NEXO token
In May 2018, the Nexo team launched its own utility token, NEXO, based on the Ethereum blockchain in ERC-20 format. In addition to Ethereum, the NEXO token is available on the BNB Smart Chain and Polygon networks.
As of May 2024, only 1 billion NEXO tokens, of which only about 560 million (~56%) are traded on the market. However, the NEXO token does not have a maximum issuance. This means the Nexo team can issue any number of its tokens at any time.
Depending on the number of tokens the owner stores on the NEXO platform wallet, the user receives various bonuses and privileges, including:
- reduced borrowing rates,
- cashback for trading operations,
- increased rewards to lenders,
- number of free cryptocurrency withdrawals, and so on.
For example, if the NEXO share of an investor's portfolio on the Nexo platform is less than 1%, the prime rate on loans will be 15.9%. If it exceeds 10%, the rate will be reduced to 7.9%, and some loans may even be interest-free. At the same time, users with more than 10% of NEXO tokens in their portfolio can earn 12% to 16% per annum on the provision of loans when the standard rate is only 8-12%.
Conclusions and outlook
Nexo is one of the leading centralized cryptocurrency lending platforms, and the project team has designed a loyalty program that encourages holders to hold a native NEXO token.
However, the NEXO token's applicability barely extends beyond the platform itself, so the platform's demand mainly drives the token market. The token can also be found on DEX exchanges Uniswap and Quickswap, meaning owners can use it for liquidity mining.
It is worth noting that the demand for cryptocurrency loan products is actively growing, as they allow users to generate income and use additional (borrowed) funds for investment.
