A Beginner's Guide to Earning and Borrowing: Nexo Product Review

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The personal finance movement is booming. From high-interest savings accounts to lucrative travel rewards, fintech companies are springing up left and right to serve retail clients’ needs. Digital finance institutions, like Nexo, are also joining in. 

And thanks to blockchain-enabled innovations, Nexo outcompetes nearly all of its traditional competitors across the board. 

Not sure how to start borrowing and earning? This guide walks you through everything you need to know about Nexo and its suite of services.

What Is Nexo?

Nexo caters to the need of clients looking to safely explore blockchain-powered financial alternatives to existing TradFi products. Unlike overwhelming platforms with high entry barriers, Nexo offers access to crypto-collateralized credit lines, with borrowing rates starting from 5.9% APR, automatic approval, and no credit checks. 

In this regard, Nexo outperforms Goldman Sachs. The premier American bank offers its clients a range of 6.99% to 19.99% fixed rate for personal loans. Nexo clients, however, can enjoy tax-efficient credit lines for as low as 5.9% while taking advantage of the value and upside potential of their cryptocurrencies without selling them. 

Clients ranging from traders to prospective homeowners can put their digital assets to good use while still hodling and without the need to pay taxes on the profits made from selling the cryptos.

The Nexo platform is also known for attractive earn-interest services. Against a backdrop of near-negative interest rates, Nexo provides a high-yield savings account. Unlike even the most competitive digital bank, Nexo’s Earn product generates returns 2,300% higher than competitors, including Goldman Sachs Marcus and American Express. 

Here’s a three-minute explainer video on how to start earning with Nexo. 

While extending the above-mentioned services, Nexo addresses the dearth of clean user interfaces in the space. Crypto has developed a reputation for clunky, non-intuitive design elements. Nexo steers clear of this and makes it simple to borrow and earn up to 12% interest on a variety of different assets, regardless of whether you’re a beginner or a seasoned client. 

Interested in learning more about these services? Getting started with Nexo is easy.

Getting Started With Nexo

When clients go to Nexo, they can open an account in less than a minute. All it takes is a simple email verification process, and they can begin earning interest. 

There are three levels in the Nexo verification & KYC process. The Starter and Basic Verification levels let clients earn interest on digital assets and cap withdrawals at lower amounts. In contrast, the Advanced Verification lets them earn yields on fiat currencies and offers higher withdrawal maximums.

The basic verification level requires users to submit their full name, home address, and phone number. After an SMS verification linked to the phone number, users can draw a credit line of up to $2,000,000 per day and withdraw up to $20,000 from their savings wallet daily. 

The Advanced verification level guarantees that users can enjoy the full benefits of Nexo. At this stage, users can withdraw a maximum of $500,000 per day from their savings wallet and draw a maximum of $2,000,000 per day from their credit line. 

This stage also unlocks convenient bank transfers, not possible at any of the previous two verification stages. This makes it fast and easy to move money between Nexo and your traditional bank.

Users who have completed the entire KYC process are also eligible for lucrative NEXO Token dividends and can apply for the Nexo crypto credit card. More on both of these functionalities shortly.

To complete the KYC process for Advanced Verification, Nexo has partnered with Jumio, an identity verification company that supports more than 3,500 ID documents across 200 jurisdictions.

After Nexo, Jumio also offers its premium identity services for Monzo, HSBC, and United Airlines, among many other large companies. And using the service to complete the Advanced Verification process is as simple as a video call. 

This process is far more convenient than visiting a brick-and-mortar banking branch.

Once fully-verified, it’s time to begin funding your Nexo account with cryptocurrencies and fiat. 

Funding Your Nexo Account

Following verification, users will also need to set up two-factor authentication (2FA) before making any deposits into their Nexo account. Setting up 2FA with any of your crypto-related accounts is highly recommended for security reasons.

Users can transfer three fiat currencies: euros (EUR), pound sterling (GBP), and US dollars (USD) straight from their bank accounts. Users can also top up with six different stablecoins and eleven cryptocurrencies from any exchange or wallet.

After sending the respective fiat or cryptocurrency, users will be notified when the funds have arrived via a small bell-shaped icon at the top of the Nexo dashboard. Crypto-specific funds can be sent from an exchange or wallet, whether that’s MetaMask or a hardware wallet. 

They need only be mindful that the address they are depositing matches the asset that they are sending. Users should never, for instance, attempt to send Bitcoin (BTC) to a Tether (USDT) address. Some assets, such as XLM, require the use of a Destination Tag or Memo to be credited to your Nexo account.

As a side note, Nexo uses BitGo to safely custody user funds. BitGo offers up to $100 million in insurance coverage for users in the case of insider theft, if a user loses their private keys, and any third-party attacks on Nexo. 

The final section of this article will unpack the benefits of using BitGo. 

Once the funds have arrived, users begin earning immediately. Users must also keep in mind the minimum funding amount for each currency to begin earning interest.

This interest is paid out daily following the first 24-hours since a transfer was made. This interest is also compounding, meaning that earning begets more earning, making the most out of users’ funds.

Once users have deposited funds, they are now eligible for an Instant Crypto Credit Line. 

How to Get a Loan

Crypto-backed loans are one of the most exciting innovations in finance. This is because they are fully-collateralized while they don’t require any approval process or credit checks. This is a key tenant of the world of open finance. 

The only prerequisite for tapping a credit line is having funds deposited on the platform. The amount that users can draw depends on their level of verification and the size of funds they have stored on Nexo. 

What’s more, users who provide cryptocurrencies as collateral can take out cash and stablecoin loans. 

If an Advanced Verified user deposits Bitcoin, they are eligible for a loan in over 45 fiat currencies. This loan can be deposited directly into their respective bank accounts. Alternatively, users can take out a loan in popular stablecoins Tether (USDT) or USD Coin (USDC). 

The rates for these loans begin at a competitive 5.9%, far outpacing traditional bank loans. 

The amount of collateral needed for each loan hinges on the relevant Loan-to-Value (LTV) ratio for any given asset. Understanding the LTV ratio is critical for credit line users. 

Nexo recently increased the LTV ratios for their credit lines and now offers a 60% LTV for popular cryptos such as BTC and ETH and 25% for the NEXO Token (a 70% increase). This means users can now withdraw a bigger credit line with the same amount of crypto assets.

Creating crypto-backed loan products is no easy task due to the asset class’s volatility. If the underlying collateral is Bitcoin, which has been known to rise and fall by as much as 50%, then a user’s LTV ratio will also fluctuate. 

Monitoring your account is crucial during market drops. In the case of falling Bitcoin prices, the LTV ratio will increase. In the case of rising Bitcoin prices, the LTV ratio will decrease. 

As the LTV ratio rises, Nexo’s blockchain oracle will notify users, via SMS or email, when they need to repay their loan or add extra collateral in their credit line wallet.

If users do not pay back the loan or increase their collateral, there is a threshold where assets from their savings account will be moved to their credit line wallet. For Nexo to begin moving the required amounts to cover the loan, users must manually enable the Automatic Collateral Transfer in their personal settings.

If these funds are insufficient to cover the required LTV ratio, the collateralized asset will be sold to pay back part of the loan. This threshold at Nexo is set at 83.3%.

If a user has no other funds on the platform, Nexo will begin selling the collateralized asset to make up the loan. This is otherwise known as liquidation. And as crypto can be volatile, users should keep in mind market movements and manage their portfolios accordingly.

That’s why users must keep a close eye on their accounts as well as the broader crypto market. 

The final piece to the lending process is the inclusion of the Nexo Mastercard. 

Instead of depositing funds directly to their bank accounts, users can make everyday transactions using the Nexo card.

What Is the Nexo Card?

The Nexo card is available to Advanced Verified users and only those who have executed a loan on their crypto holdings. Instead of transferring the loan to a bank account, these users can use the Nexo card and app to spend cash anywhere that Mastercard is accepted.

The card, which is available for early-access, is advantageous for several reasons. 

The first is the generous 2% cashback on every purchase. Though Nexo card users still pay a minimum of 5.9% on the loan needed to use the card, the cashback bonuses help minimize this cost. 

The second reason is that spending with the Nexo card is far faster than waiting for the sometimes days-long transfer to a traditional banking account. With Nexo, users can start spending the minute the loan is executed.

The final reason for using the Nexo card is the liberty that comes with the Nexo Wallet app, which is used for managing the card. 

Through the app, cardholders are notified of any transactions made, can freeze the account at will, and also enjoy secure online shopping via the app’s virtual cards. These features are beneficial for digital nomads who are often traveling. 

From the high-interest savings accounts to the low-cost loans, every feature on the Nexo platform is further enhanced with the NEXO Token. 

What Is the NEXO Token?

Nexo’s native token allows users to unlock further benefits from the various services on offer. Like the verification process, there are four levels of loyalty for NEXO Token holders: Base, Silver, Gold, and Platinum. 

Each level is defined by the number of NEXO Tokens a user holds in their account. 

Holding NEXO Tokens is not a prerequisite for enjoying the additional 2% interest. To activate this bonus interest rate, users must simply opt-in to receive their interest in the token. 

Not only do the NEXO Tokens allow users to save on their loans and gain more on their savings interest, but they are also dividend-bearing assets. This feature gives the token a stock-like quality not dissimilar to popular stocks like Target Corp. (TGT) or Johnson & Johnson (JNJ). 

Each company pays out its dividends differently. Nexo offers its holders 30% of the total net revenue that the company has generated. This 30% is distributed proportionately to the number of tokens a user holds. These bonuses are again split into two categories: Base Dividend and Loyalty Dividend. Token holders are thus incentivized to hold on to their tokens to become eligible for the Loyalty Dividend. 

These dividends have been executed three times in the company’s history, for a total distribution of $9,449,627.26 distributed to NEXO holders in 2018, 2019, and 2020. 

Each year the dividends have been larger than the last, indicating that the company is growing fast.

Indeed, the broader savings market, both traditional and crypto-based, has grown quickly in the past few years. It begs the question, how does Nexo compare to the competition?

Top Competitors

There are three categories of competitors that Nexo is facing, some more directly than others. 

The first, of course, is traditional banks. These days, however, they pose little threat to Nexo as clients look for real returns on their idle cash. Holding cash in a low-interest bearing account can be risky due to inflation. It’s critical for emergencies, but too much cash sitting idle and being eaten away by inflation is risky. 

Plus, opening an account with any of these services is far more cumbersome than almost any of the market’s digital alternatives these days. 

The second group of competitors includes neo banks like Monzo, Revolut, N26, and many others. Like traditional outfits, these companies rarely offer rates higher than 1.25%. Though it should be said, they offer several improvements over brick and mortar banks, including faster onboarding. 

The third group is Nexo’s direct competitors. These are companies like BlockFi, Celsius, Crypto.com, Blockchain.com, and many others. The differences in rates are minimal and also subject to change. 

Thus the primary differentiator comes down to the number of assets listed, how interest is paid out, user experience, the team behind the project, and the use of a native token (if one exists). 

Some of these features come down to personal preference, while others, such as the team and the platform’s security standards, are extremely important to understand. 

For instance, BlockFi only offers eight total assets, has yet to launch its cashback card, and has slightly lower rates than Nexo. Celsius has more assets, a native token, and competitive interest rates, but only pay the interest out weekly, don’t use BitGo as their secure custodians, and give out un- and under-collateralized loans, which can affect their stability should markets crash. 

As to native tokens, though CEL’s price is higher, the NEXO token has greater liquidity, meaning you can trade it more easily. The latter also has its own tokenomics program, Nexonomics, which consistently boosts its value and utility, thus sustainably boosting its price. 

Some of these differences are clearly more important than others. Examining each of these differences is a key part of due diligence before investing any hard-earned money. 

Is Nexo Right for You?

Answering this question depends on various factors and should only be made after a hefty round of research. 

That being said, by avoiding risk at all costs, many users aren’t just leaving money on the table, but they’re also hemorrhaging value due to inflation. Crypto-specific users, especially the long-term holders, may also benefit from using a service like Nexo. By adding Bitcoin to Nexo, users put idle assets to work and generate attractive passive returns. 

As outlined in this article, Nexo doesn’t merely offer high-interest savings either. 

Nexo’s security backing makes them akin to full-scale financial institutions, offering credit cards, low-cost loans, all while leveraging a fast-growing community of NEXO token holders. 

Disclosure: The author of this article uses one or more of the services mentioned in this article. Nexo is a sponsor of Crypto Briefing.

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