The Nexo Token is a 30c Dollar (Part 1)

    Charles Edwards
    Aug 21, 2019 · 6 min read

    Part 1: The Nexo Token Value Proposition

    In a world of zero and negative interest rates, and overpriced assets, the Nexo Token offers a unique value proposition.

    Nexo is a market leading crypto-backed loan provider which has proven its ability to rise above the competition and deliver rapid growth and profitability despite being born in one of the biggest cryptocurrency bear markets in Bitcoin’s 10-year history.

    Although just 16 months old, the Nexo platform has shown product leadership. In 2019 alone, Nexo’s total loans processed has more than doubled and profitability is up 260%.

    The Nexo Token is a different kind of crypto. Its value is not dependent on pure token supply and demand dynamics, because Nexo pays dividends. As of August 2019, Nexo’s Dividend Yield is a whopping 12.7%.

    This two-part series assesses the Nexo Token value proposition and estimates its current fair value. The Part Two valuation (here) finds that the Nexo Token has a fair value of $0.26. At a current trading price of $0.077 (21 August 2019), the Nexo Token offers the intelligent crypto investor a 240% return opportunity. Buying the Nexo token today is like buying a dollar for just 30 cents.

    What is Nexo?

    Founded in Switzerland in 2018 by the successful Credissimo leadership team[1], Nexo is a bank for cryptocurrencies. It is one of the largest crypto-backed lending institutions.

    The Nexo product is easy to use and boasts high levels of automation. Registration is fast and funds can be deposited and withdrawn at any time by both borrowers and lenders alike, with interest distributed daily.

    As of writing, lenders earn 8% p.a. on USD, EUR, GBP and several other cryptocurrencies on the Nexo platform[2]. That’s more than 7% higher than most major European banks including HSBC, BNP Paribas and Barclays, and higher than most traditional banks globally. In today’s low interest rate environment, where over 25 European and Asian countries have interest rates of zero or less[4], that is a significant feat.

    Borrowing on the Nexo platform costs a maximum of 24.9% per annum, but if a loan is backed by Nexo Tokens or is repaid with Nexo Tokens, that rate drops to as low as 8% per annum[2].

    Nexo have built a great product and proven their ability to execute. Since launching, $700 million of loans have been processed to over 200,000 users[5]. Nexo has consistently paid out profit via dividends, with profitability and the first dividend payment occurring just 7 months after Nexo’s launch in 2018[3].

    How Nexo Makes Money

    Nexo revenue comes from the spread between the borrower rate and the lender rate. As of writing, the borrower rate is between 8% and 24.9%, and the lender rate is 8%.

    It is also likely that Nexo has other sources of revenue.

    As with traditional banks, Nexo may be deploying some of its capital to earn an additional rate of return. However, according to Nexo, 95% of crypto currencies are stored in cold wallets[2]. As a result, most assets would therefore not be accessible for such purposes.

    To take out a loan, borrowers must post a collateral deposit to the tune of 200–500% of the borrowed amount[8]. Due to the size of the collateral, it is possible that default events also add to Nexo’s top line, though as of writing this is uncertain.

    Finally, Nexo is also working on incorporating new products to increase loan revenue and token demand, such as the recently announced Nexo credit card[7].

    The Best Thing About the Nexo Token: The Dividend

    Nexo pays out 30% of all profits as a dividend to those who keep their tokens in the Nexo wallet. The final amount that each token holder receives is dependent on their eligibility for the ‘Base Dividend’ and ‘Loyalty Dividend’. These two categorisations are calculated as[9]:

    • Base Dividend — proportionally based on an individual’s Nexo Token holdings.
    • Loyalty Dividend — proportionally based on how long each token has been in the Nexo Wallet from one ex-dividend date to the next. The share of the Loyalty Dividend is no less than 1/3 of the total dividend amount to be distributed in any given period. For the August 2019 dividend, the Loyalty Dividend represented 50% of the total dividend payout[6].
    The Nexo Dividend Model[9]

    Despite being just 16 months old, 30% of profits represents a substantial payout to token holders. In August 2019, Nexo’s Dividend Yield is 12.73%[6]. This places Nexo in the top 3.9% of all listed US stocks ranked by Dividend yield[10] and effectively means that every Nexo Token bought today would pay for itself with dividends in just 7.5 years, and that is assuming nil growth in the business.

    If Nexo’s business continues to grow at a moderate rate (such as that forecast in Part Two of this series), each token bought today could pay for itself within 5 years.

    Average Dividend Yield for Dividend Paying US Stocks [6],[10]

    A Cut Above the Competition

    Nexo is not short of competitors in the crypto-backed loan space including BlockFi, Celsius, CoinLoan, Helio, Inlock, Kambo, Lendo, Nebeus, SALT, Unchained Capital, Whalelend and more. All of these businesses were founded prior to or during 2018 and have had a similar amount of time to establish themselves.

    Despite this competitive landscape, Nexo has distinguished itself with its leading product, brand, insurance policy covered by UK’s Lloyd’s and its token structure. Today, Nexo is one of the largest players in the crypto-loan space.

    The Nexo management’s experience in building the profitable Credissimo business over 10 years in the online fiat credit market has likely helped Nexo catapult to the forefront in the crypto-loan space. Nexo has an active Telegram group and Medium account which is used to communicate with their investors and user base. To date, 50 articles have been posted on Medium in the last 12 months, this is illustrative of Nexo’s commitment to clear and open communication.

    The Kicker: A Great Supply and Demand Dynamic

    In addition to the intrinsic value offered by Nexo Token’s dividends, if the Nexo platform continues to grow and the number of open loans increases, an interesting Supply and Demand dynamic will unfold which also tends to a higher token price, all else being equal:

    1. Higher Demand will result from:
    • More borrowers wanting to buy the Nexo Token to pay off debt at the lowest rate.
    • More investors wanting to buy the Nexo Token to receive the dividend payment.

    2. Tightening Supply will result from:

    • More borrowers wanting to hold the Nexo Token to use as collateral for their loan (an alternative to item 1.1 above).
    • More investors wanting to hold the Nexo Token in the Nexo Wallet to receive the full Base and Loyalty dividends and maximise their return on investment.

    The Supply and Demand economic model dictates that higher demand and tightening supply results in price appreciation.

    The Supply and Demand Economic Model

    The Nexo Token Value Proposition

    In a world of declining interest rates and quantitative easing, the crypto credit market could be one of the fastest growing industries in the coming decade. Nexo has positioned itself in a prime position to capture a potentially massive future market.

    The Nexo Token offers investors the opportunity to gain exposure to the high growth cryptocurrency credit industry, all while holding a unique SEC complaint security which benefits from both an intelligent supply and demand dynamic, and a highly rewarding dividend payout.

    Part two of this series (here), performs a deep dive calculation of the Nexo Token’s Fair Value.


    [10] Calculated using data from:

    Capriole | Digital Asset Management | Deep value investing and cryptocurrency quant trading.

    Charles Edwards

    Written by

    Digital asset management | Deep Value investing & autonomous algo-trading. Follow me on Twitter: @caprioleio


    Capriole | Digital Asset Management | Deep value investing and cryptocurrency quant trading.

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