One of the last cryptocurrency lenders, Nexo, said on Monday it will phase out its high-yield product for US customers.
The decision comes as investors question the transparency and balance sheet health of cryptocurrency exchanges, particularly major lenders, amid industry turmoil following the collapse of Nexo’s high-yield cryptocurrency product FTX.
“Our decision comes after more than 18 months of good faith dialogue with U.S. state and federal regulators that ended in an impasse,” Nexo said.
The announcement came shortly after the company’s co-founder and managing partner Antony Trenchev joined Yahoo Finance Live for an interview.
“I think we are one of the best examples of transparency in the blockchain space,” Trenchev said.
Founded in 2017, Nexo specializes in cryptocurrency lending, a market segment where at least three major firms — Voyager Digital, Celsius Network, and BlockFi — have all filed for bankruptcy protection, leaving thousands of customers as creditors in ongoing Chapter 11 proceedings.
When Voyager and Celsius freeze customer accounts starting in June, Nexo reacted quickly, clearly demonstrating its financial stabilityWith the offer to acquire “qualifying assets” of Celsius.
A few hours after Celsi froze the accounts, Nexo reminded customers the company performs daily attestation of its commitments, a longer practice necessary for firms seeking to build trust with clients.
“We went the extra mile to show that our assets exceed our liabilities, which very few companies in this space have done,” Trenchev told Yahoo Finance.
Like other cryptocurrencies, Nexo lends out customer deposits from the Earn Interest product and is allowed to “re-confirm” these deposits as per the terms of service. In the event of default, its terms state the company has the right to terminate the contract and “take any action it deems necessary to protect its interests.”
On Nov. 29, Nexo’s website was offering an APY of more than 10% on certain cryptocurrency deposits, though Trenchev was quick to tell Yahoo Finance that the company’s average customer doesn’t earn that level.
“They earn less interest,” Trenchev said. “That’s because as a company we’ve never relied on outside funding.”
Even proving asset-liability matching, whether cryptographically or through a third party, can be difficult to show investors what they should know before using a cryptocurrency application. And many cryptocurrencies still only show client assets without disclosing client liabilities.
Nexo’s daily attestation reports show that while the company doesn’t share the cryptocurrencies it claims as assets on its balance sheet, it fully supports more than $2.59 billion in customer liabilities with collateral.
Like FTX, Celsius and other crypto firms, Nexo launched its own cryptocurrency (NEXO-USD). According to Trenchev, “less than 10% of his total balance consists of tokens”.
Concern about FTX began in early November, when Coindesk revealed a leaked balance sheet for FTX branch Alameda. The balance sheet showed that most of the $14.6 billion in assets claimed by Alameda were circular holdings, most of which came from cryptocurrency tokens or over-market collateral from FTX and other affiliate firms. A few days after this financial leak, FTX went bankrupt.
A month after expressing interest in acquiring Celsius’ assets, Nexo has announced it will begin due diligence on Vauld, another cryptocurrency lender. Although the Celsius pitch did not pass Celsius’s bankruptcy filing, Trenchev said the due diligence process for Vauld is ongoing.
The company also acquired a minority stake in Hulett Bancorp and its federally chartered bank Summit National Bank in September. The move, the company said, “will enable Nexo to offer services to US retail and institutional customers including bank accounts, asset-backed loans, card programs, as well as savings and custody solutions through Summit National Bank.”
Nexo’s token, which has a market capitalization of $366 million, was traded at 65 cents, down 5% in the last 24 hours.
David Hollerith is Yahoo Finance’s senior correspondent covering cryptocurrency and stock markets. Follow him on Twitter @DsHollers
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