NEXO is a centralized lending protocol which uses smart contracts to provide ready access to collateralized loan options to users with no credit check, although KYC verification is still required. The native token to the application, NEXO, is rising in recent weeks on a tide of good news. Most significantly, the company has initiated a token buyback worth $12M. This money has already begun to pull tokens out of circulation: at the time of writing, the Ethereum wallet address where the tokens will be stored has 8 tokens in it, worth $3.34. We can expect any substantial price decreases to be at least partly hedged by whatever algorithm they’re using to try to get the most NEXO they can for their money. That’s not the only reason I’m bullish on NEXO, though. Let’s look at the two major factors hanging over this discussion and try to figure out what’s likely to happen next.
NEXO is an ERC-20 token. This means it is an application of the Ethereum technology stack, which means it stands to gain as ETH2 gains momentum and traction—but the token is also rising organically, by supplying a novel product which is difficult to get access to elsewhere in the market. That product is collateralized loans enabled by transparent smart contracts paired with an easy-to-use application for the web browser or mobile phone. NEXO tokens are tied in by an incentive structure that creates more favorable interest conditions for users who hold a certain proportion of their portfolios in NEXO. This article will be part history, looking at how NEXO got to the position it finds itself in, and part prediction. It seems very likely that NEXO’s price will continue to rise in coming months, especially if BTC does too.
Since The Beginning
Nexo was initially launched in 2018 and rapidly developed a cutting edge algorithm to price in risk and create a virtually unbeatable collateralized loan infrastructure. Most people think DeFi started in 2020, but Nexo was here before the hype and seems to be achieving the last laugh in the matter. From a January low market capitalization of under $60M, NEXO has reached a new all-time high market cap of over $250M. Even compared to May levels, the price has more than tripled from $.11 to $.41 as of the time of writing.
Considerably less hyped than protocols that directly facilitate transactions that could be considered DeFi (i.e., taking out a collateralized loan against an asset and buying more of that asset with the money you get because you’re that confident the price will go higher), NEXO makes it kind of a hassle to execute the transactions needed to compound one’s exposure to a reliable asset that shows every sign of trending higher for the foreseeable future, i.e., Bitcoin.
It took me several hours the other night to fully lever a little bit of money into Bitcoin via Nexo and COINBASE Pro, but oddly enough, it seems this may be a significant benefit to the centralized Nexo protocol that may actually ensure its survival even if some of the DeFi protocols are legislated out of existence, though it’s not entirely clear that this is a thing that can actually be accomplished, given decentralization’s stated main idea of avoiding having the network be shut down. If anything, legislation could incentivize further decentralization by eliminating any tangible benefit to being credited for one’s work in the field.
Could NEXO Be More Likely Than DeFi Protocols To Survive Legislation?
Nexo is a well-funded company with an excellent product they’re advertising the hell out of and an interesting legal loophole that makes it possible. Nexo’s website bills itself as “The Leading Regulated Financial Institution for Digital Assets,” but the Mission Statement claims that “Since 2018 Nexo has strived to bring professional banking services to the world of digital assets.” I may not be the only person wondering whether Nexo is regulated currently in a way it may still be regulated in if legislation around stablecoins passes.
Nexo’s protocol deals in stablecoins primarily and thus might be impacted by stablecoin legislation, but BTC itself might serve as a stand-in if necessary. It is conceivable that stable, steady appreciation in the BTC market could obviate any real necessity for currency-tied stablecoins simply by being a more appealing reserve currency to the world’s investors. As the Bitcoin price increases, the NEXO token price is likely to increase as well simply because increasing Bitcoin prices will naturally diminish the percentage of a given investor’s portfolio is in the NEXO coin, impacting interest and hence profitability for the position—whether it is leveraged or not!
For the simple reason that Bitcoin as the world’s reserve currency would upend the financial balance of power and fundamentally inhibit the creation of billionaire-level personal wealth by necessitating close attention be paid to any position one might take up and rendering the most successful new developments all but impossible to predict, the cryptocurrency ecosystem Bitcoin is the best-known representative of will reshape everything from the food supply to the workday. The fundamental rationality with which wealth will be distributed under this new world financial algorithm will be a stark contrast in comparison to the arbitrary and flippant way in which Texan oil millionaires and billionaires were awarded their gains by the economy.
Given what’s at stake here, in terms of the politics that are going to happen in response to the rise of Bitcoin, we’re not at zero risk in terms of our NEXO token positions. The protocol could be attacked by legislators, and while it might find a legal defense for itself or even decentralize in response to court action against the ecosystem, the possibility also exists that it could be taken offline. If that happens, the token will go to zero and any money anyone has invested in it will be lost. I see that as an unlikely possibility, but it’s a significant one. It matches well with the potential NEXO has to sort of ride Bitcoin’s coattails to new heights. I am proud to say I picked some NEXO up during the lull toward the end of last summer for what now appears to have been an amazing price. I’m hoping this is only the beginning for both Bitcoin and NEXO, as I’m as long as I get on both right now.
