Nexo too centralized?
For starters, on September 26, eight US states filed cease and desist orders against Nexo, alleging that the company was offering investors unregistered securities without informing them of the risks associated with the financial products.
Specifically, Kentucky regulators have charged Nexo with bankruptcy, saying that without the NEXO name, the company’s “liabilities will exceed its assets.” As of July 31, Nexo had 959,089,286 NEXOs in its reserves – 95.9% of all tokens in existence.
“This is a big, big, big problem, because a very simple market analysis shows that Nexo will not be able to monetize a significant portion of these tokens,” said Mike Bergersberg, an independent market analyst and author of Dirty Bubble Media Substack. :
“Given this fact, the real value of NEXO tokens in dollars on Nexo Balance is likely to be close to zero.”
Burgersburg also argued that Nexo is at risk of bankruptcy because it holds the vast majority of NEXO Tokens on the platform. He made comparisons with Celsius Network, a crypto lender with over 50% of the original CEL tokens.
The top 100 NEXO holders collectively own 95.53% of the tokens. Source: Eterscan
Celsius eventually became the owner of more than 90% of all CEL tokens in circulation after attracting deposits and guarantees from clients. This made CEL very illiquid and therefore volatile. In other words, CEL has become an entirely imperfect resource for fixing Celsius scale problems.
“The NEXO token is more liquid than the failed Celsius Networks CEL token,” Bergersburg warned, noting that the token’s average daily trading volume is less than 1% of market capitalization.
However, a Nexo spokesperson denied the allegations, stating that the data they provided to regulators in Kentucky was for the Nexo group company.
“We can confirm that on a consolidated basis, NEXO tokens represent less than 10% of the company’s total assets,” they told Cointelegraph, adding:
“This in turn goes beyond the company’s responsibility, even if we exclude the company’s net position in the NEXO tokens.”
As for why Nexo owns more than 90% of the NEXO supply, a company spokesperson pointed to the economics and benefits of the token, noting that it creates natural incentives for customers to store their tokens on the platform.
“In addition to earning higher interest on their digital assets 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 corporate tokens with similar value propositions such as FTT, BNB, and CRO, which are primarily held on FTX, Binance, and Crypto.com, respectively.”
The price of NEXO could get rocky
Fear, uncertainty and skepticism related to rumors of market volatility or strict regulation of crypto-lending platforms may cause negative investor sentiment towards NEXO. Unfortunately, the technical setup of the token says the same thing.
Related: Nexo buys stake in US charter bank
In particular, since June 12, NEXO price has formed an ascending triangle on the long-term charts. Ascending triangles are a continuation pattern for a downtrend, which makes NEXO vulnerable to a sharp price drop.
According to the rule of technical analysis, the ascending triangle is resolved after the price breaks below the lower trend line and continues to decline in the same direction until it reaches a level equal to the maximum height of the triangle.
This setting is shown in the chart below.