Nexo, one of crypto’s last lenders standing, said Monday it would phase out its high-yield product for U.S. customers.
The decision comes as Nexo’s high-yield crypto interest product has garnered scrutiny as investors question the balance sheet transparency and health of crypto exchanges, especially major lenders, amid continued industry fallout from the collapse of FTX.
“Our decision comes after more than 18 months of good-faith dialogue with US state and federal regulators which has come to a dead end,” Nexo said in its statement.
The announcement came shortly after the company’s co-founder and managing partner, Antoni Trenchev, joined Yahoo Finance Live for an interview.
“I think we are one of the better examples of transparency in the blockchain space,” Trenchev said.
Formed in 2017, Nexo specializes in crypto lending, a segment of the market that’s seen at least three major firms — Voyager Digital, Celsius Network, and BlockFi — all file for bankruptcy protection, leaving thousands of customers as creditors in ongoing Chapter 11 proceedings.
When Voyager and Celsius froze customer accounts starting in June, Nexo quickly reacted by publicly displaying its financial resilience, making an offer to acquire “qualifying assets” of Celsius.
Hours after Celsius froze accounts, Nexo reminded customers the company conducts daily attestation proof of its liabilities, a longer practice that’s become a must-have for firms looking to shore up trust with customers.
“We have gone the extra mile of showing that our assets exceed our liabilities, which very few companies in the space have done,” Trenchev told Yahoo Finance.
Like other crypto lenders, Nexo lends out customers’ deposits from its Earn Interest product and has permission to “rehypothecate” those deposits, according to its terms of service. In the event of default, its terms state the company is entitled to terminate its agreement and “take any action it deems necessary to protect its interests.”
As recently as November 29, Nexo’s website was offering a more than 10% APY on certain crypto deposits, though Trenchev was quick to tell Yahoo Finance the company’s average customer isn’t earning that level of return.
“They’re earning a much smaller percentage,” said Trenchev. “The reason for that is that as a company, we’ve never relied on outside financing.”
Even proving an assets and liability match, whether cryptographically or through a third party, can fall short of showing investors what they need to know before using a crypto app, with FTX serving as the most recent and prominent case in point. And many crypto exchanges still only show customer assets without revealing customer liabilities.
Nexo’s daily attestation reports show the company fully backs more than $2.59 billion in customer liabilities with collateral, though it doesn’t share what cryptocurrencies it claims as assets on its balance sheet.
Like FTX, Celsius and other crypto firms, Nexo has issued its own crypto token (NEXO-USD). Out of its total balance sheet “less than 10% is made up” by the token, according to Trenchev.
Concern around FTX started in early November, when Coindesk revealed a leaked balance sheet for FTX affiliate, Alameda. The balance sheet showed that of $14.6 billion in assets Alameda claimed, much of these turned out to be circular holdings, with a majority coming from crypto tokens or collateral created by FTX and other affiliate firms that exceeded their market supply. Just days after these financial were leaked, FTX went bust.
A month after expressing interest in acquiring Celsius’ assets, Nexo announced it would begin a due diligence process for Vauld, another beleaguered crypto lender. While the Celsius pitch didn’t proceed past Celsius’ bankruptcy petition, Trenchev said the due diligence process for Vauld is ongoing.
The company also took a minority stake in Hulett Bancorp and its federally chartered bank, Summit National Bank, back in September. This move, the company said, would “allow Nexo to offer its US retail and institutional clients services that include bank accounts, asset-backed loans, card programs, as well as escrow and custodial solutions through Summit National Bank.”
Carrying a market capitalization of $366 million, Nexo’s token has sold off by 5% over the past 24 hours to 65 cents.
