Nexo provides fiat loans and accepts cryptocurrencies as collateral. The company is backed by Credissimo and provides more than 45 currencies in more than 200 jurisdictions.
Switzerland-based Nexo was one of the first companies in the world to provide crypto-backed loans. The concept is simple: Borrowers deposit cryptocurrencies as collateral and borrow fiat money against them.
This service comes in handy for people who need cash but don’t want to give up on their crypto holdings. If you hold Bitcoin worth $10,000, but you believe it will go up to $20,000, it makes sense to take out a Nexo loan rather than selling your Bitcoin.
45+ currencies in more than 200 jurisdictions
Nexo is backed by Credissimo, a European Fintech company that has been in the market since 2007 and provided more than a million consumer loans of up to $2,000 to European borrowers.
Nexo was founded in 2017 and raised $50 million in an STO. Co-founder Antoni Trenchev said, “This is not a startup. This is a team that has a successful track record for over ten years extending over $120 million in credit.”
Today, Nexo provides loans in more than 45+ currencies in more than 200 jurisdictions. Trenchev said: “Crypto is borderless. We will immediately cover much of the world.”
How it works? Deposit crypto, borrow fiat
Borrowers who want to take out a Nexo loan can deposit Bitcoin, Ether, Ripple, NEXO Tokens, or Binance Coin as collateral. Earlier this, month, the firm announced it would also accept Telegram’s gram ICO token, following the first public sale that has started on July 10.
Nexo borrowers retain the full ownership of their digital assets throughout the lifespan of the credit line. They can either receive the funds into their bank account or use a Nexo Credit Card to withdraw to their bank account or spend directly.
The annual percentage rate (APR) is charged on the amount of credit the borrower has actually used. It starts at 8% if the Nexo token is staked as collateral and goes up from there.
Nexo keeps the collateral with BitGo, a custodian that provides multi-signature wallets. Both, the borrower and the lender have a key to the wallet and if the borrower defaults, Nexo will take out the amount of crypto to cover the loan and the interest that accrued. Any leftover funds will be returned to the customer.
Identity verification, Know-Your-Customer, and Anti-Money-Laundering checks are conducted by Onfido, which also works with reputable industry names like CME, TransferWise, and CoinBase.
Nexo does not pull credit reports, meaning Nexo loans do not affect borrowers’ credit scores used by the traditional banking industry.
Managing volatility with a 50% loan-to-value ratio
As cryptocurrencies are highly volatile, Nexo maintains a 50% loan-to-value ratio, meaning someone who wants to borrow $10,000 would have to deposit $20,000 in the respective cryptocurrency. If the value of the underlying digital currency goes up, the credit line will automatically increase as well.
“This is the first buffer and protection for both the company and for the customer against overleveraging and being put in a position where they have to repay part of the loan or get some of their collateral liquidated [in case the value of the cryptocurrency falls],” explains Trenchev.
Trenchev believes volatility is an issue now but will be less dramatic in the future. “If you look at the historic volatility of the crypto space, it still is very volatile but the trend is downward,” he says.