On November 27, crypto lender Nexo found itself under harsh criticism from the crypto Twitter after crypto analyst Dylan LeClair drew attention to its unreasonably high APY compared to decentralized lenders Compound and Aave.
Currently, Nexo offers up to 15% yield on a variety of cryptos and stablecoins, with DOT, AXS, and GMX promising the highest returns. The actual yield may vary depending on loyalty tiers, which, in turn, are determined by the portfolio’s allocation to NEXO token.
According to Dylan LeClair, Nexo’s double-digit yields can’t be sustainable, but the same is true for any company offering similar products. His reasoning is based on Nexo’s rate of return compared to current DeFi yields and Treasury bonds.
“Ask yourself how Nexo is paying 10% on stablecoins while DeFi yields are 1% and short duration US Treasuries are 4.5%,” the analyst wrote. “If the yield is greater than the ‘risk free’ market rate, they are by definition taking directional risk to chase said ‘yield’.”
“Nexo makes interest via collateralized borrowing to users, and it’s higher rate than the yield provided. The problem here is that in a system with no lender of last resort, the commercial bank model on crypto rails can blow up, quickly,” he added, pointing out how after Celsius, BlockFi, Voyager, and FTX collapse there’s virtually no company left that can bail out insolvent crypto firms.
Meanwhile, Nexo’s Kiril Nikolov took off to Twitter to soften the mounting skepticism. As he explained, the screenshot brought by LeClair doesn’t show the full picture.
“The screenshot you have posted is the highest possible rate, requiring long lockup, NEXO tokens & only up to a specific size threshold. Effective rates paid on average are much lower and this simple logic does not take into account all the aspects of our business,” Nikolov tweeted.
Other crypto commentators also raised concerns about Nexo’s total assets being seemingly propelled by its own native token, NEXO. According to the Dune dashboard shared by LeClair, the crypto lender controls 82% of NEXO supply, while 85% of its total assets held on Ethereum are, well... NEXO tokens.
For context, FTX debacle was triggered by the leaked balance sheet that revealed that a significant share of Alameda’s asset holdings were in FTX’s native token, FTT — an illiquid altcoin printed out of thin air. And just like NEXO, FTT was a utility token that granted access to special services or preferential treatment, thus incentivizing users to hold it.
On October 16, Nexo took off to Twitter to refute the rumors of its insolvency after its website stopped displaying its real-time audit attestation due to an oracle bug. At the press time, Nexo’s audit of assets is operating as usual, showing that the company’s total assets match 100% of its customer liabilities. The company currently holds 162,548 BTC.