Crypto lending agency Nexo is at threat of shedding half of the valuation of its native token by the top of 2022 as doubts about its potential insolvency develop out there.
Is Nexo too centralized?
For the unversed: Eight U.S. states filed a cease-and-desist order towards Nexo on Sep. 26, alleging that the agency gives unregistered securities to buyers with out alerting them in regards to the dangers of the monetary merchandise.
Particularly, regulators in Kentucky accused Nexo of being bancrupt, noting that with out its namesake native token, NEXO, the agency’s “liabilities would exceed its belongings.” As of July 31, Nexo had 959,089,286 NEXO in its reserves — 95.9% of all tokens in existence.
“It is a large, large, large drawback as a result of a really primary market evaluation demonstrates that Nexo can be unable to monetize a major chunk of those tokens,” famous Mike Burgersburg, an impartial market analyst and writer of the Soiled Bubble Media Substack, including:
“On condition that reality, the true worth of the $NEXO tokens on Nexo’s stability sheet is probably going near $0.”
NEW: “IS NEXO NEXTO?”
In line with state regulators, Nexo is bancrupt with out counting $NEXO tokens on their stability sheet.
This is identical state of affairs Celsius Community was in… and primary market evaluation suggests actual worth of their $NEXO is ~$0 https://t.co/txt1kOSydH
— dirtybubble.usd (@MikeBurgersburg) September 28, 2022
Comparisons with Celsius
Burgersburg additionally alleged that Nexo faces insolvency dangers as a result of it holds the overwhelming majority of NEXO’s token provide on its platform. He drew comparisons to Celsius Community, a now-defunct crypto lending agency that owned greater than 50% of its native token, CEL.
Celsius ended up holding over 90% of the overall CEL tokens in circulation after attracting deposits and collateral from clients. This made CEL extraordinarily illiquid and, thus, risky. In different phrases, CEL grew to become a deeply imperfect asset for patching Celsius’ troubling stability sheets.
“NEXO token is much more illiquid than the bankrupt Celsius Community’s CEL token,” warned Burgersburg, noting that the token’s common each day buying and selling quantity involves lower than 1% of its market capitalization.
Nevertheless, a Nexo spokesperson denied the allegations, clarifying that the info they offered to Kentucky regulators was for one of many Nexo Group’s entities.
“We will affirm that on a consolidated foundation, NEXO tokens characterize lower than 10% of the corporate’s complete belongings,” they advised Cointelegraph, including:
“That, in return, exceeds the corporate liabilities even when excluding the corporate’s web place in NEXO tokens.”
As to why Nexo holds greater than 90% of the NEXO provide, the agency’s spokesperson cited the token’s economics and utility, saying that they create pure incentives for shoppers to maintain their tokens on the platform.
“Along with incomes larger rates of interest on their digital asset balances by holding NEXO tokens on the Nexo platform, shoppers can use NEXO tokens as collateral, earn curiosity on them and alternate them immediately on the Nexo platform,” they defined, including:
“The identical is true for the tokenomics of corporations with related worth propositions corresponding to FTT, BNB and CRO, held predominantly on FTX, Binance and Crypto.com, respectively.”
NEXO value may get rocky
The worry, uncertainty and doubt surrounding the rumors of market volatility or stringent regulation towards crypto lending platforms may create adverse funding sentiments towards NEXO. Sadly, the token’s technical setup suggests the identical.
Associated: Nexo acquires stake in US chartered financial institution
Notably, NEXO’s value has been forming what seems to be an ascending triangle on its longer-timeframe charts since June 12. Ascending triangles are thought-about bearish continuation patterns in a downtrend, which makes NEXO prone to excessive value declines.
By the rule of technical evaluation, an ascending triangle resolves after the value breaks beneath its decrease trendline and continues falling in the identical route till it reaches the extent that’s at size equal to the triangle’s most peak.
This setup is illustrated within the chart beneath.
Within the occasion that the sample confirms, the value of NEXO may fall towards $0.47, down about 50% from its present value.
The views and opinions expressed listed here are solely these of the writer and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer entails threat, you need to conduct your individual analysis when making a choice.
