Crypto lending firm Nexo is at risk of losing half the valuation of its native token by the end of 2022, as doubts about its potential insolvency grow in the market.
Is Nexo too centralized?
For the unversed: Eight US states filed a cease and desist order against Nexo on September 26, alleging that the firm offers unregistered securities to investors without alerting them to the risks of financial products.
Specifically, Kentucky regulators accused Nexo of being insolvent, noting that without its namesake native token, NEXO, the company’s “liabilities would outweigh its assets.” As of July 31, Nexo had 959,089,286 NEXO in its reserves, 95.9% of all existing tokens.
“This is a big, big, big deal because very basic market analysis shows that Nexo would be unable to monetize a significant portion of these tokens.”noted Mike Burgersburg, an independent market analyst and author of the Dirty Bubble Media Substack, adding:
“Given that fact, the actual value of $NEXO tokens on Nexo’s balance sheet is probably close to $0.”
NEW: “IS NEXO NEXTO?”
According to state regulators, Nexo is insolvent without counting $NEXUS tokens on their balance sheet.
This is the same situation Celsius Network was in… and basic market analysis suggests real value of their $NEXUS is ~$0 https://t.co/txt1kOSydH
— dirtybubble.usd (@MikeBurgersburg) September 28, 2022
NEW: “WHAT WILL HAPPEN TO NEXO?”
According to state regulators, Nexo is insolvent without the $NEXO tokens on its balance sheet.
This is the same situation Celsius Network found itself in… and basic market analysis suggests that the real value of your $NEXO is ~$0
Comparisons with Celsius
Burgersburg also alleged that Nexo faces insolvency risks because it owns the vast majority of NEXO’s token supply on its platform. He drew comparisons to Celsius Network, a now-defunct crypto lending firm that owned more than 50% of its native token, CEL.
Celsius ended up holding over 90% of the total CEL tokens in circulation after attracting customer deposits and collateral. This made CEL extremely illiquid and therefore volatile. In other words, CEL became a deeply flawed asset in repairing Celsius’s troubling balance sheets.
“The NEXO token is even more illiquid than the broken Celsius Network token CEL,” Burgersburg warned, noting that the token’s average daily trading volume comes in at less than 1% of its market cap.
Nevertheless, A Nexo spokesperson denied the allegations, clarifying that the data they provided to Kentucky regulators was for one of the Nexo Group entities.
“We can confirm that on a consolidated basis, NEXO tokens represent less than 10% of the company’s total assets,” they told Cointelegraph, adding:
“That, in turn, exceeds the company’s liabilities even when the company’s net position in NEXO tokens is excluded.”
As for why Nexo holds over 90% of NEXO’s supply, the firm’s spokesperson cited the economics and utility of the token, saying they create natural incentives for customers to keep their tokens on the platform.
“In addition to earning higher interest rates on their digital asset balances by holding NEXO tokens on the Nexo platform, customers can use NEXO tokens as collateral, earn interest on them, and exchange them directly on the Nexo platform.“, they explained, adding:
“The same goes for the tokenomy of companies with similar value propositions, such as FTT, BNB, and CRO, which are predominantly found on FTX, Binance, and Crypto.com, respectively.”
NEXO price could be unstable
Fear, uncertainty and doubt surrounding rumors of market volatility or strict regulation against crypto lending platforms could create negative investment sentiments towards NEXO.. Unfortunately, the technical configuration of the token suggests the same.
In particular, NEXO price has been forming what appears to be an ascending triangle on its long-term charts since June 12. Ascending triangles are considered bearish continuation patterns in a downtrend, making NEXO susceptible to extreme price declines.
According to the rule of technical analysis, An ascending triangle resolves after price breaks below its lower trend line and continues to fall in the same direction until it reaches the level that has a length equal to the maximum height of the triangle.
This configuration is illustrated in the following graphic.
In case the pattern is confirmed, the NEXO price could drop towards $0.47, down 50% from its current price.
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