Examining Nexo, a Crypto-Lender Platform Offering Interest on Stablecoins
Nexo, a cryptocurrency-backed cash lending platform, currently offers interest payments on deposits made in six different stablecoins. Starting out, the minimum participation sum is $100,000 USD worth of a given stablecoin but the Nexo team will reportedly reduce that sum to $1,000 “with the next Nexo Platform release.”
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Another Wrinkle in the Crypto-Lending Arena
Nexo, an Ethereum-based cryptocurrency project that allows individuals to borrow U.S. dollars or euros via monthly interest payments, is generating interest as of late in offering literal interest on stablecoin deposits.
On the Nexo platform, loans are given without any form of credit check. Instead, the system relies on an over-collateralized cryptocurrency deposit.
This type of business model was first pioneered by Salt Lending. A few other platforms in the cryptoeconomy use similar formats, such as EthLend and Celsius.
Where Nexo tries to decisively set itself apart is in offering 1-to-1 stablecoin conversion guarantees to its liquidity providers, a bid to assuage general concerns of such coins losing their fiat pegs.
The project uses a native ERC-20 token for loan repayments, for collateral that secures lower rates than if BTC or ETH is used, and for staking.
The variable returns provided through that third use case represents a percentage of the company’s profits for a quarterly period. To qualify for earning this crypto-dividend, users need to pass a heightened Know Your Customer (KYC) verification process.
As such, Nexo considers its token as being one of the first full-fledged security tokens.
Stable Returns on Stablecoins?
Stablecoins, or cryptocurrency assets that are designed to be non-volatile, have become popular among digital assets traders in recent months.
While Tether (USDT) was long the biggest, many other competitors have appeared in the last year.
Earn 6.5% interest on your stablecoins!
Nexo is introducing the only protection for stablecoins on the market by guaranteeing a 1-to-1 conversion to U.S. Dollars on any stablecoin for all Nexo Liquidity Providers @Tether_to @GeminiTrust @TrustToken @MakerDAO @PaxosStandard pic.twitter.com/7VWQYLngPr
— Nexo (@NexoFinance) October 29, 2018
According to Nexo, their stablecoin liquidity providers can earn annual interest rates up to 6.5 percent. For now, the supported pegged coins include Dai, Gemini Dollar, Paxos Standard Token, Tether, TrueUSD, and USD Coin.
Crypto Aimed at Becoming Viable Long-Term Savings Competitor — Can It Pan Out?
Alas, Nexo joins the ranks of cryptocurrency projects and companies aimed at offering decent returns on deposits.
Whether the project will ultimately succeed remains to be seen, but that will depend on if crypto-lending matures as an attractive option to the many.
The status quo is rather boring, however. But regarding money, boring is conservative, and conservative is safe. It all comes down to risk aversion. Nexo is obviously riskier than a typical U.S. savings account that might yield no more than 0.1 percent interest per year.
With that said, and in the context of the cryptoverse, Nexo is gunning for its own brand of safety. We’ll see if that “have your cake and eat it too” brand can endure.
Is It Worth the Risk?
On the surface, stablecoins can appear to be ideal stores of value in the sense that most have historically shown very little volatility.
However, it’s important to remember that stablecoins are still subject to market movements. Pegs can be lost, sometimes catastrophically. What’s more, some stablecoins, namely USDT, have faced suspicions regarding their solvency.
Nexo’s 1-to-1 conversion guarantee is its claim to fame for now, then.
But it’s critical to do conduct research first before diving in to any cryptocurrency platform or project, and this crypto-lending platform is no exception. As with any black swan event, that conversion guarantee could be paper deep in times of crisis.
What’s your take? Do you think Nexo and platforms like it are worth pursuing in the ecosystem? Let us know in the comments section below.
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