Nexo

Nexo shutters US Earn product a month after settling with regulators

The shutdown of Nexo’s earn product follows from a multi-million dollar settlement the firm paid last month with United States regulators.

Cryptocurrency lending firm Nexo Capital is set to terminate its yield-bearing Earn Interest roduct for its customers in the United States roughly a month after it agreed to pay $45 million in penalties to U.S. regulators.

Nexo announced the termination in a Feb. 10 blog post saying the product would be stopped on April 1. The program allowed users to earn daily compounding yields on certain cryptocurrencies by loaning them to Nexo.

An update for our U.S. clients.https://t.co/wRiDOPKEqg

— Nexo (@Nexo) February 11, 2023

Nexo pointed to its Jan. 19 settlements with the Securities and Exchange Commission and the North American Securities Administrators Association as the reason for the halt on offering Earn.

The SEC, NASAA and at least 17 state securities regulators investigated Nexo for failing to register the offer and sale of its Earn product.

Nexo paid a $22.5 million penalty and agreed with the SEC to cease offers of its Earn product to U.S. investors, an additional $22.5 million in fines were paid to settle charges by state regulators.

Nexo did not admit or deny the findings by the SEC but agreed to a cease-and-desist order prohibiting it from violating securities law provisions.

According to Nexo’s announcement, Earn users will continue to receive interest payments until April 1. Those subscribed to a fixed-term product will have it unlocked on the termination date, with Nexo urging users to “begin planning the withdrawal of your funds.”

Other Nexo services and products will not be affected, according to the firm.

Troubled crypto lender Vauld gets extended creditor protection

The company claims that the negotiations with potential crisis managers entered the “advanced stage.”

Embattled crypto lending platform Vauld was granted another period of creditor protection from a Singapore court. The company should come up with a revival plan before Feb. 28.

As reported by Bloomberg on Jan. 17, Vauld has been granted more than a month to close its negotiations with one of two digital-asset fund managers to take over the executive control of the tokens stuck on its platform. Apparently, the Singapore high court was satisfied by the company’s claim that the negotiations have entered to the “advanced stage.”

In July 2022, the platform halted withdrawals for its 800,000 customers, citing unfavorable market conditions and an unprecedented $200 million worth of withdrawals in under two weeks. In August 2022, it was already granted a three-month moratorium to develop a restructuring plan for the business and provide a better outcome for its creditors. Back then the judge denied the company’s request for a six-month protection period, citing concerns that a lengthier moratorium “won’t get adequate supervision and monitoring.”

From the beginning of the first moratorium, it became known that Nexo, a Swiss-headquartered crypto lender, intended to acquire Vauld with all its assets. However, after Nexo’s own office in Bulgaria was raided by police, Vauld denied any possibility of this deal.

That’s not the first time Singapore authorities have demonstrated their readiness to let troubled crypto companies fix their problems. Another major Singapore-based platform, Zipmex, was granted a three-month moratorium to sort out liquidity issues in August 2022.

However, the fate of crypto lending in the country remains unclear, with Singapore’s central bank proposing banning digital payment token service providers from offering “any credit facility” to consumers, including both fiat and cryptocurrencies.

Nexo sues Cayman Islands financial regulator over VASP license

The crypto lender claimed that the Cayman Islands Monetary Authority had placed “too much weight” on regulators’ enforcement actions in its decision to deny registration.

The same week that Bulgarian authorities were raiding Nexo’s offices and indicting four individuals for charges related to money laundering, the crypto lender filed suit in the Cayman Islands.

In a document dated Jan. 12, Nexo filed a lawsuit against the Cayman Islands Monetary Authority, or CIMA, for denying its registration as a virtual asset service provider (VASP) in the island nation. The crypto lender asked the court to overturn the financial regulator’s decision as it was “suitable” to provide crypto services to Cayman Islands residents.

According to court documents, Nexo applied to CIMA in January 2021, providing additional information at the request of the regulator. However, the monetary authority asked for clarification on the application last October, citing “certain legal and regulatory matters as noted in the news media” that Nexo had not disclosed. It rejected the application in December.

“The Authority breached its constitutional and statutory duty to provide comprehensible, satisfactory and sufficiently detailed reasons for its Refusal Decision,” alleged Nexo.

Nexo claimed that CIMA had placed “too much weight” on regulators posing enforcement actions on the crypto lender, citing incidents in United Kingdom courts. State-level regulators in the United States also filed cease and desist orders against Nexo in 2022, but Nexo says in its lawsuit that this doesn’t mean it acted improperly:

“[Nexo] had diligently cooperated with all US states and federal regulatory inquiries and has been proactive in maintaining dialogue with the respective regulators […] There have been some regulatory ambiguities with respect to the laws and regulations applicable to digital assets in the US such that the fact of the regulatory enforcement itself does not connote any improper behaviour.”

The lending firm announced in December that it planned to gradually cease operations in the United States “over the coming months,” citing a lack of regulatory clarity.

Nexo investigation is not political, Bulgarian prosecutors say

A spokesperson for Bulgaria’s chief prosecutors has denied claims that the investigation was prompted by the company’s political donations.

Siika Mileva, a spokesperson for Bulgaria’s chief prosecutors, has denied political motivations behind the probe against the crypto lending firm Nexo, according to local reports. The comments were made in response to claims that the investigation had a connection to the company’s political donations.

Almost all cases where a prosecution launches an investigation that affects someone’s financial interests results in attacks and accusations, Mileva said. “It has become a national sport to attack the institutions,” he added.

On Jan. 12, a group of prosecutors, investigators and foreign agents searched the company’s offices in the Bulgarian capital city of Sofia. The operation targeted a large-scale money laundering scheme as well as violations of Russia’s international sanctions.

In less than 48 hours after Nexo’s offices were raided, four people were charged with money laundering, tax crimes, computer fraud and unlicensed banking. Two individuals were released on bail of nearly $550,000. The two others remain unfound in Bulgaria and have been declared internationally wanted persons. It’s unclear whether the individuals had a connection with the crypto firm.

According to Mileva, transactions carried out by Nexo amounted to $94 billion in a period of five years. An organized criminal group operating in several countries since the beginning of 2018 has been under investigation, noted the spokesperson.

On Twitter, Nexo complained about the law enforcement raid and said it was preparing a lawsuit against for damages caused by the abrupt police interruption. The company classified the authority’s approach as “kick first, ask questions later”.

According to the company, investigators did not provide a search warrant for hours and never identified themselves to Nexo employees.

We are always cooperating with the relevant authorities and regulators, and we are hopeful that we will have some exciting news in the weeks to come. 7/

— Nexo (@Nexo) January 12, 2023

Nexo operates an investment platform where users can stake and borrow against crypto. Although it has offices in Bulgaria, the firm does not provide services to the country’s residents due to potential regulatory issues. The company was founded in 2018 and has offices in the United Kingdom, Bulgaria and Switzerland.

In December, Nexo announced it would phase out its United States operations due to a lack of clear regulatory cooperation with U.S. authorities.

Bulgarian authorities charge four individuals following raid on Nexo office: Report

Following the Jan. 12 raid on its Sofia offices, Nexo described prosecutors’ actions as a “kick first, ask questions later” approach.

Less than 48 hours after a raid on cryptocurrency lender Nexo’s offices in the Bulgarian capital of Sofia, prosecutors have reportedly charged four people.

According to a Jan. 13 report by Bloomberg, authorities charged four Bulgarian nationals with forming an organized crime group, which may have included activities related to money laundering and unlicensed banking. The country’s National Police Service reportedly seized a number of assets as part of the investigation, including cryptocurrency, cash and computers.

Following the Jan. 12 raid, Nexo described prosecutors’ actions as a “kick first, ask questions later” approach. The company reportedly planned to file a lawsuit seeking compensation for damages caused by police actions, alleging authorities did not show a search warrant or identify themselves to Nexo employees.

“We are always cooperating with the relevant authorities and regulators,” said the lending firm.

George Naydenov, a frontend developer at Nexo’s Sofia office, said on LinkedIn:

“I thank the Bulgarian Prosecutor’s Office for trying, of course, in the most incompetent and pathetic way to take away the work of over 600 people in Nexo including me.”

It’s unclear which individuals and what role they may have held at Nexo were involved in the arrests. The lending firm has roughly 600 employees in Sofia.

Founded in 2018, Nexo operates an investment platform allowing users to stake and borrow against crypto. The company has offices in the United Kingdom, Bulgaria and Switzerland, but reportedly does not offer its services to Bulgarian residents due to potential issues with the local government. In December, Nexo announced that it planned to phase out its services in the United States, citing the lack of a clear regulatory-compliant path forward.

Nexo dodges $219M bullet just days before FTX’s solvency crisis

The firm withdrew its remaining balance from FTX at the 11th hour and topped weekly fund outflows from the troubled exchange.

According to a Nov. 8 tweet, crypto lender Nexo currently has net zero exposure to the ongoing crisis embroiling cryptocurrency exchange FTX and crypto trading firm Alameda Research. Nexo also explained that it withdrew its entire balance of funds from FTX within “the past few days.”

Alex Svanevik, CEO of blockchain analytics platform Nansen, confirmed the story, providing data showing that Nexo withdrew over $219 million from FTX between Nov. 1 and Nov. 8. This also ranks Nexo as the top entity for funds outflow in the past week.

The firm appears to have dodged a major bullet, as on Nov. 8, FTX announced that it would halt all non-fiat consumer withdrawals. Continuing with its assessment of the situation, Nexo said that it had a small loan to Alameda Research representing less than 0.5% of its assets. The loan was fully collateralized by digital assets, which Nexo said were sold on Nov. 6. According to the firm, the trade resulted in “100% principal recovery and $0 losses for the company.”

.@Nexo has $0 net exposure to FTX/Alameda.
As a conservative institution with stringent risk controls @Nexo has safeguarded *all* funds by withdrawing its entire balances from the exchange over the past few days, as evidenced by on-chain data:https://t.co/py8fzBDKbP
1/

— Nexo (@Nexo) November 8, 2022

Nexo has thus far sidestepped major industrywide risk events this year, including the collapse of Terra, hedge fund Three Arrows Capital and crypto lender Celsius. According to a real-time audit of the firm’s custodied assets, Nexo currently has more than $3.4 billion in consumer liabilities, with a collateralization ratio of more than 100%, making them fully backed by Nexo’s assets. The numbers are attested by United States accounting firm Armanino LLP, which is an auditor certified by the Public Company Accounting Oversight Board.

Insolvency not in ‘Nexo’s reality,’ says co-founder during AMA

Co-founder Kalin Metodiev stated that comparisons between Celsius, Voyager and Nexo are “very far from reality” and that the firm is focused on building in a sustainable way.

Bankruptcy or insolvency is not in “Nexo’s reality” according to the crypto lending platform’s co-founder and managing partner, Kalin Metodiev.

In an Ask Me Anything (AMA) video posted via YouTube on Oct. 4, founders and managing partners Metodiev and Antoni Trenchev addressed community questions and recent FUD-related rumors that Nexo could soon face insolvency issues.

Responding to a question about the insolvency/bankruptcy rumors and whether Nexo will be the “next Celsius and Voyager,” Metodiev explicitly stated that:

“Insolvency, bankruptcy are nowhere in Nexo’s reality, and we believe, we hope, we aspire, [and] we[‘re] work[ing] very hard to deliver a very strong and sustainable future for our users.”

“Finding resemblances with these two names [Celsius and Voyager] or other names in the space, is very far from reality and I think this is very easily verifiable,” he added.

Adding to Metodiev’s comments, Trenchev noted: “that I didn’t want to mention [any] names but I’m going to mention a few names; you know, no exposure to the Terra (LUNA) debacle, absolutely no lending to Three Arrows Capital.”

“In the two names that were mentioned in the question, in the bankruptcy filings you can see the creditors list, Nexo is not on that,” he said.

The rumors appear to have originated in part, from a claim in a Sept. 26 cease and desist order from the Kentucky Department of Financial Institutions that Nexo’s “liabilities would exceed its assets” if its Nexo (NEXO) token holdings were excluded from the equation. This is just one of several cease and desist orders filed against Nexo.

Market analysts such as Dirty Bubble Media author Mike Burgersburg previously alleged that Nexo is facing insolvency risks because it holds the vast majority of NEXO’s token supply on its platform, similar to Celsius which owned more than 50% of its native token, CEL.

In line with such thinking, a sharp decline in the price of NEXO could significantly impact the company, he alleged.

However, a Nexo spokesperson promptly denied the allegations to Cointelegraph, stating that the data they provided to Kentucky regulators was for one of the Nexo Group’s entities, and that “NEXO tokens represent less than 10% of the company’s total assets.”

In the AMA, the Nexo founders also addressed a question relating to the firm’s recent attestation, which indicated that Nexo’s $3.7 billion worth of customer liabilities are 100% collateralized but doesn’t provide any further details than that.

Asked whether the firm plans to “include a breakdown of assets within the attestation rather than just a total dollar figure?” Metodiev outlined that Nexo will provide greater transparency, but didn’t outline what that will entail as he suggested the company also needs to balance the need for privacy to stave off competition.

“The more transparency we can provide that will be helpful to our community, to our users, to decision makers for investment purposes. We would continue increasing this transparency, but making sure that this transparency, first of all, doesn’t diminish our competitive edge.”

“I think you know that while we commit and will continue increasing the transparency, it needs to be done with the proper degree of duty and responsibility to make sure that this transparency is constructive and beneficial for decision making purposes,” he added.

Insolvency not in ‘Nexo’s reality’ — Co-founder during AMA

Co-founder Kalin Metodiev stated that comparisons between Celsius, Voyager and Nexo are “very far from reality” and that the firm is focused on building in a sustainable way.

Bankruptcy or insolvency is not in “Nexo’s reality,” according to the crypto lending platform’s co-founder and managing partner, Kalin Metodiev.

In an ask-me-anything (AMA) video posted on YouTube on Oct. 4, founders and managing partners Metodiev and Antoni Trenchev addressed community questions and recent FUD-related rumors that Nexo could soon face insolvency issues.

Responding to a question about the insolvency/bankruptcy rumors and whether Nexo will be the “next Celsius and Voyager,” Metodiev explicitly stated:

“Insolvency, bankruptcy are nowhere in Nexo’s reality, and we believe, we hope, we aspire, we work very hard to deliver a very strong and sustainable future for our users.”

“Finding resemblances with these two names [Celsius and Voyager] or other names in the space is very far from reality, and I think this is very easily verifiable,” he added.

Adding to Metodiev’s comments, Trenchev noted: “I didn’t want to mention [any] names, but I’m going to mention a few names. You know, no exposure to the Terra debacle, absolutely no lending to Three Arrows Capital.”

“In the two names that were mentioned in the question, in the bankruptcy filings you can see the creditors list — Nexo is not on that,” he said.

The rumors appear to have originated in part from a claim in a Sept. 26 cease-and-desist order from the Kentucky Department of Financial Institutions that Nexo’s “liabilities would exceed its assets” if its NEXO token holdings were excluded from the equation. This is just one of several cease-and-desist orders filed against Nexo.

Market analysts such as Dirty Bubble Media author Mike Burgersburg previously alleged that Nexo is facing insolvency risks because it holds the vast majority of NEXO’s token supply on its platform, similar to Celsius, which owned more than 50% of its native token, CEL.

In line with such thinking, a sharp decline in the price of NEXO could significantly impact the company, he alleged.

However, a Nexo spokesperson promptly denied the allegations to Cointelegraph, stating that the data provided to Kentucky regulators was for one of the Nexo Group’s entities and that “NEXO tokens represent less than 10% of the company’s total assets.”

Asked whether the firm plans to “include a breakdown of assets within the attestation rather than just a total dollar figure,” Metodiev outlined that Nexo will provide greater transparency, but didn’t outline what that will entail, as he suggested the company also needs to balance the need for privacy to stave off competition:

“The more transparency we can provide that will be helpful to our community, to our users, to decision makers for investment purposes. We would continue increasing this transparency, but making sure that this transparency, first of all, doesn’t diminish our competitive edge.”

NEXO risks 50% drop due to regulatory pressure and investor concerns

Analysts fear NEXO price could come under pressure if regulatory action in the United States begins to intensify.

Crypto lending firm Nexo is at risk of losing half of the valuation of its native token by the end of 2022 as doubts about its potential insolvency grow in the market.

Is Nexo too centralized?

For the unversed: Eight U.S. states filed a cease-and-desist order against Nexo on Sep. 26, alleging that the firm offers unregistered securities to investors without alerting them about the risks of the financial products.

In particular, regulators in Kentucky accused Nexo of being insolvent, noting that without its namesake native token, NEXO, the firm’s “liabilities would exceed its assets.” As of July 31, Nexo had 959,089,286 NEXO in its reserves — 95.9% of all tokens in existence.

“This is a big, big, big problem because a very basic market analysis demonstrates that Nexo would be unable to monetize a significant chunk of these tokens,” noted Mike Burgersburg, an independent market analyst and author of the Dirty Bubble Media Substack, adding:

“Given that fact, the true value of the $NEXO tokens on Nexo’s balance sheet is likely close to $0.”

NEW: “IS NEXO NEXTO?”

According to state regulators, Nexo is insolvent without counting $NEXO tokens on their balance sheet.

This is the same situation Celsius Network was in… and basic market analysis suggests real value of their $NEXO is ~$0 https://t.co/txt1kOSydH

— dirtybubble.usd (@MikeBurgersburg) September 28, 2022

Comparisons with Celsius

Burgersburg also alleged that Nexo faces insolvency risks because it holds the vast majority of NEXO’s token supply on its platform. He drew comparisons to Celsius Network, a now-defunct crypto lending firm that owned more than 50% of its native token, CEL.

*The top 100 NEXO holders collectively own 95.53% token supply. Source: Etherscan*

Celsius ended up holding over 90% of the total CEL tokens in circulation after attracting deposits and collateral from customers. This made CEL extremely illiquid and, thus, volatile. In other words, CEL became a deeply imperfect asset for patching Celsius’ troubling balance sheets.

“NEXO token is even more illiquid than the bankrupt Celsius Network’s CEL token,” warned Burgersburg, noting that the token’s average daily trading volume comes to less than 1% of its market capitalization.

However, a Nexo spokesperson denied the allegations, clarifying that the data they provided to Kentucky regulators was for one of the Nexo Group’s entities.

“We can confirm that on a consolidated basis, NEXO tokens represent less than 10% of the company’s total assets,” they told Cointelegraph, adding:

“That, in return, exceeds the company liabilities even when excluding the company’s net position in NEXO tokens.”

As to why Nexo holds more than 90% of the NEXO supply, the firm’s spokesperson cited the token’s economics and utility, saying that they create natural incentives for clients to keep their tokens on the platform.

“In addition to earning higher interest rates on their digital asset balances by holding NEXO tokens on the Nexo platform, clients can use NEXO tokens as collateral, earn interest on them and exchange them directly on the Nexo platform,” they explained, adding:

“The same is true for the tokenomics of companies with similar value propositions such as FTT, BNB and CRO, held predominantly on FTX, Binance and Crypto.com, respectively.”

NEXO price could get rocky

The fear, uncertainty and doubt surrounding the rumors of market volatility or stringent regulation against crypto lending platforms could create negative investment sentiments toward NEXO. Unfortunately, the token’s technical setup suggests the same.

Notably, NEXO’s price has been forming what appears to be an ascending triangle on its longer-timeframe charts since June 12. Ascending triangles are considered bearish continuation patterns in a downtrend, which makes NEXO susceptible to extreme price declines.

By the rule of technical analysis, an ascending triangle resolves after the price breaks below its lower trendline and continues falling in the same direction until it reaches the level that is at length equal to the triangle’s maximum height.

This setup is illustrated in the chart below.

*NEXO/USD 3-day price chart featuring ascending triangle breakdown setup. Source: TradingView*

In the event that the pattern confirms, the price of NEXO could fall toward $0.47, down about 50% from its current price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Nexo ‘surprised’ by state regulators’ actions, says co-founder

Kalin Metodiev emphasized that Nexo has been navigating through conversations with regulators for the past couple of years to ensure compliance, and was surprised that this news was “thrown out there in public.”

Kalin Metodiev, the co-founder and managing partner of crypto lender Nexo, stated his firm was “surprised” by the way in which eight state regulators publicly took action against it for securities violations.

Earlier this week, the California Department of Financial Protection & Innovation (DFPI) filed a desist and refrain order against Nexo’s Earn Interest Product, claiming the company was offering a security product that had not been cleared by the government for sale in the form of an investment contract.

The DFPI also stated that it was joining regulators from seven other states in taking action against the company, including Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont.

Speaking with Cointelegraph at Token2049, Metodiev explained that Nexo was caught off guard by the latest regulatory push back, as it has been “trying to be responsible” by engaging in direct conversations with the regulators such as the Securities and Exchange Commission (SEC) for quite some time.

“We were a little surprised by this news being thrown out there in public, you know, because this isn’t a process that just started this week,” he said, adding that:

“We have worked with our legal advisors in the U.S. that we have used for the last couple of years to navigate us specifically through these waters in these conversations.”

*Kalin Metodiev, the co-founder and managing partner of crypto lender Nexo*

Metodiev said Nexo also communicated to the SEC earlier this year that it was “voluntarily” discontinuing services for new U.S. customers, suggesting the firm was working in good faith and aiming to be compliant with local regulations.

The product has not been available to new users in the United States since Feb. 19, and existing U.S. account holders were unable to make new deposits into their accounts.

“The event that made us make the decision was actually the SEC ruling against BlockFi in February. The moment we saw that we established contact with the SEC, and we communicated that we’re voluntarily discontinuing, taking money from U.S. customers. And we haven’t been working with new customers for our interest generating product.”

Ultimately this hasn’t put Nexo off over providing services in the United States. However, as the firm will continue to remain in conversations with regulators over its crypto offerings.

Metodiev also highlighted that the company is looking at U.S. expansion through other avenues, pointing to Nexo acquiring a stake in Hulett Bancorp this week, a holding company that owns the federally chartered Summit National Bank.

Nexo has also been out on the look out for crypto company acquisitions, with Metodiev noting that the firm has had discussions with a lot of liquidity troubled firms in the bear market, even the likes of Voyager Digital and Celsius.

While he stated discussions had been going well with various firms, he didn’t provide any concrete details on any deals that could be in the works. Metodiev suggested it had been priced out of a Voyager deal, as its $1.4 billion asset valuation that FTX snapped it up for, became too high for Nexo.

“If the opportunity becomes too rich for us, as I mentioned, our risk management, kicks in and we say, you know, we’re not sure that we can break even on this. We want to help the people and the platform, but at the same time, it needs to be a normal business assessment for us,” he said.