Nexo — Token Analysis
Use Cases, Technology and User Experience
What is the use case of the token?
Nexo provides instant crypto-backed cash loans. Borrowers can pledge selected cryptocurrencies — currently Bitcoin, Ethereum, Nexo and Binance Coin — as collateral, and access fiat cash loans against that collateral. Users are also issued with credit cards which they can use to spend fiat currencies which are borrowed against their pledged crypto assets.
The platform is backed by Credissimo a Fintech company founded in 2007 that already has 10 million clients in Europe. The Nexo ICO was held in April 2018, raising $52.5 million. Nexo tokens are US SEC compliant, dividend-paying, security tokens.
There are several advantages to borrowing fiat against crypto assets. Firstly, token holders can access cash without actually selling their crypto assets and potentially missing out on upside. The other advantage is that while selling a crypto asset triggers a tax event, borrowing fiat against that asset does not.
There are also advantages to owning and buying native Nexo tokens. Nexo’s token was the first dividend token issued, with 30% of platform profits being paid to token holders. If loans are repaid using the native Nexo token, a discount is applied to the interest payable on the loan. Finally, Nexo tokens can be pledged as collateral on the platform.
What does the technology behind look like?
Nexo is predominantly built with smart contracts on the Ethereum blockchain. Very little about the actual technology being used is included in the whitepaper or on the website. Having said that, the mechanisms required are fairly simple simple and relatively easily executed using smart contracts.
Nexo also has a partnership with BitGo, a leading blockchain security and wallet provider, which provides wallet and storage technology.
How is the User Experience?
The platform is very simple and intuitive. Users can signup and transfer assets to their Nexo wallet in minutes. Once crypto assets are in the wallet, the Nexo Oracle automatically calculates the limits to the amount they can borrow.
Loans can be withdrawn by bank transfer or Tether and can be repaid using USD, EUR, BTC, ETH or Nexo. For users, there are no transaction fees and no minimum repayment amounts.
In future, users will vote for new coins to be added to the list of those accepted as collateral.
Team & Developer Community
The team is led by three managing partners. Kosta Kantchev is a co-founder of Credissimo and has over 10 years’ experience in the fintech industry.
Georgi Shulev has a background in banking, having previously worked at Unicredit Bank Austria, Lehman Brothers, and the European Investment Bank. He also oversees business development and international expansion at Credissimo.
Antoni Trenchev has a background in politics and e-commerce. He is head of innovation at Credissimo.
The CTO is Vasil Petrov who has 16 years’ experience in system administration, back-end development and architecture of high-load and full-cycle projects.
Another 11 team members are listed on the website, bringing experience in corporate finance, auditing, compliance, marketing, business development and engineering to the platform.
Three advisors are listed. Michael Arrington is the founder of Techcruch and runs a digital asset hedge fund. Trevor Koverko is the founder and CEO of Polymath, a blockchain tech service provider. Paolo Tasca runs the UCL Centre for Blockchain Technologies and is a leading academic in the blockchain space.
Overall, the team has a proven track record in Fintech and broad experience in most of the relevant areas.
Nexo token is an ERC-20 token. One billion tokens were issued, of which 52.5% were sold during the token sale. 25% were allocated to an overdraft funding reserve and 11.25% were allocated to the team and the remaining 11.25% were used for other community building purposes.
Nexo does not charge transaction fees, but rather earns a margin on the interest rate charged on loans. The key metrics in determining profitability are therefore the margin earned on loan interest and the total value of loans.
The actual interest rates charged to users is not fixed, but a figure of 15% has been mentioned by the team. Margins on these loans are usually in the region of 30 to 50%, implying profits of about 6% on the value of each loan granted for 12 months.
Token holders receive dividends equal to 30% of the profits earned by the platform. As an example, if we assume investors are demanding a 5% annual dividend yield, and the average value of all loans were to reach $1 billion for a full year, the total token supply would be worth $360 million.
($1 billion x 6% x 30% = $18 million, $18 million is 5% of $360 million)
The above is just an example, and an accurate valuation would only be possible when loan data is made available or dividends are paid.
The website does mention $1 billion in loan requests but doesn’t mention the amount granted or the average length of those loans. The token price has fallen 88% since it reached $0.35 in early May suggesting there is not yet natural demand for tokens.
Progress History, Achievements and Road Map
Nexo has to date done a fairly good job of sticking to its roadmap. After the ICO was initially delayed, it took place in April. The platform was launched the same month, offering users instant loans against Bitcoin and Ethereum collateral. BNB tokens were added as approved collateral in July.
The Nexo credit card is due to be launched soon. After that the two major goals for the next 12 months are the acquisition of an FDIC insured banking institution and the launch of an enterprise API. Both would extend Nexo’s reach, but no details have been announced to date.
The Nexo project has had an enthusiastic following in the crypto community from the start. The Telegram channel still numbers 54,000 members and the Twitter page has 38,000 followers.
Token price performance does not however suggest investors prefer this project to the average blockchain project.
Nexo has a simple business model, there are valid reasons to buy and own the token, and the token is easier to value than most other tokens. Ultimately, the value of the token will depend on the number of crypto investors making use of the service offered by the platform.
The risk to the business model is the number of competitors. Direct competitors like SALT and ETHlend already exist, and almost every blockchain project in the banking sector plans to offer a similar service. Most exchanges will also offer collateral backed loans in the future.
There is not enough information to make an informed decision at present. However, we will be watching the project closely for signs of traction or new partnerships.
Total Score: 7/10
* The information contained in this article is for education purpose only and not financial advice. Do your own research before making any investment decisions.
Originally published at primei.co on September 21, 2018.