WTF is Nexo?
In short, it’s a lending platform where you can borrow money and earn interest on your crypto. Let’s dive in.
Nexo is a finance platform that allows users to take out crypto-backed loans and earn interest on their tokens. Users deposit popular coins, which then act as collateral, and in return can take loans in the forms of fiat currencies and stablecoins. Users can also earn interest on popular coins solely by holding them in Nexo wallets.
Nexo claims its goal is to solve the inefficiencies present in the lending market by leveraging blockchain technology. They believe their platform Nexo, and native token NEXO are key to doing so. They believe they offer the most efficient and user-friendly lending platform available to crypto holders.
In today’s piece, our primary focus will be the Nexo platform’s native token, NEXO, A utility and income-producing token that gives users a variety of benefits, including the ability to earn interest and boosted interest on coins, access discounted interest rates on loans and earn dividends from Nexo’s profits.
What does the NEXO token do?
Holding NEXO tokens on your account will do three things;
- Reduce the interest rates on the loans you take out
- Increase the interest you earn on your deposited crypto
- Generate a passive income as they provide a dividend
It’s like a reward feature used to supercharge a user’s experience of the platform.
Lending against collateral
Traditional finance has allowed people to borrow money against their assets for a long time. If you own a house or a business, you’d be able to take out a loan worth less than the asset. The reason is if hypothetically the borrower couldn’t pay off the loan, the collateral would be taken instead.
Nexo offers people the same opportunity but instead of using houses and businesses as collateral, people can use their crypto.
This is great, as not all borrowers will have houses and expensive items to use as collateral. Crypto allows smaller investors to take loans.
There are always pros and cons to these things. On one hand, the fact that it’s a smart contract means there is no human intervention. This means that people are less likely to be discriminated against due to something like age, race or gender, all that matters is the amount held as collateral. On the other hand, this also means no exceptions are made which in some cases can be a bad thing. If someone is in need of a loan due to a specific circumstance but they don’t have enough crypto as collateral, they are simply not eligible.
How does it actually work?
- Smart contracts and oracles are used to manage loans on the Ethereum blockchain.
- When crypto is transferred to a Nexo-controlled wallet, the oracle establishes the loan and funds are immediately allocated.
- When funds are deposited back into the wallet, the oracle records this and the amount owed is deducted.
- The smart contract acts as the loan broker. It’s in charge of everything, which makes the process seamless, easy and removes the possibility of human error through something like bias.
The power of liquidity
Why would people take a loan out if they didn’t need the money? Well, many investors want their assets to be liquid. Liquid means they are spendable and usable. Now, if you’re holding Bitcoin, that’s great, you can send the upside when the asset goes up in value. But are you really maximising the asset? It’s not doing anything if you hold it in a wallet. If you put your Bitcoin up as collateral on a platform like Nexo and take a loan out, you could then use the loan money to invest further in the market. Potentially earning a greater X return on your initial investment.
The risk is that once your original amount is locked up, you can’t get it back without paying the loan off + interest. If you don’t earn more than the interest, you’re making a loss overall.
So if you are leveraging tools like Nexo to take money out to further invest, remember to be careful and choose wisely.
How does Nexo the company benefit?
Nexo makes a profit from the interest accumulated on the loans. For Nexo, the more users taking loans from their service, the more successful their business becomes. This has led Nexo to seek to build a user base of clients that continue to use the platform and remain invested in NEXO.
To do this, the company announced a loyalty program that rewards those who keep NEXO in their accounts, giving them preferential interest rates on loans and higher yields on savings. Nexo also distributes 30% of its profits to NEXO token holders in the form of dividends, which also encourages users to hold their coins with Nexo.
What are the Tokenomics of Nexo?
Nexo has a fixed supply of 1 billion tokens. The allocations are as follows;
- 52.5% for sale to investors
- 25% for the company’s financial reserves
- 11.25% for the founders and original team
- 6% for community building
- 5.25% for legal and marketing
In 2020, the team committed to buying back $12 million worth of NEXO with the intention of taking them out of circulation and increasing the price of the token.