Debts products and dividends-paying stocks hardly have the same sex appeal as surging equities, but Nexo could soon change that in the crypto landscape.
Today’s negative interest rates, pressure on traditional equities, crypto volatility, and a prolonged bear market are playing into the hands of what is becoming one of crypto’s best bets: high interest loans and dividend-paying tokens.
The cryptocurrency lending and borrowing market is showing immense signs of growth, with BlockFi, Celsius, CoinLoan, Lendo, Nebeus, SALT, and others all competing. However, the Nexo project stands out from the pack with a unique dividend-paying token, Nexo (NEXO).
At press time it is up almost 20 percent for the day. What’s the attraction?
Nexo: A Next-Generation Lending Model
In most cases, crypto borrowing and lending is a fairly simple model. Borrowers reduce their exposure to downside risk by only paying interest on the coins they trade with. Lenders earn a return, which in the case of crypto can run from around six to 14 percent.
Nexo’s model is slightly more nuanced. By using Nexo tokens as collateral, borrowers can reduce their interest rates from around 25 percent to around eight. By holding Nexo tokens, lenders earn dividends: currently just under 13 percent per year, although volatility can make this a risky bet.
Nexo offers advantages to both parties: lower interest payments on the one hand, and dividend payouts on the other. The dividend comes from 30 percent of the company’s profits, which are paid out “more frequent[ly] where operating results and industry standards permit” than traditional dividend payments in traditional stock markets. $2,409,574.87 was paid out on August 15th, earned for the period of December 1, 2018 – June 30, 2019.
The payout is calculated on the basis of Base Dividends and Loyalty Dividends, with the latter rewarding longer-term holders of the token.
Backed by Legitimate Players With an Unusual Twist on Tokenomics
Nexo, based in Switzerland, was created by the Credissimo team. According to the company, the tokens are SEC-compliant and all deposits insured by Lloyd’s. Lenders can deposit Euro as well as a range of U.S. dollar-pegged stablecoins, while loans are in crypto. Crypto lending is coming soon to the platform.
But what is most intriguing to the upside for Nexo tokens is their tokenomic model. As servicing loans in Nexo tokens saves borrowers around 16 percent in interest, one would expect strong borrower demand for the native tokens.
From the lender’s perspective, holding Nexo tokens long-term nets higher dividends, given the component of Loyalty Dividends. The demand and supply equation points to a bullish outlook for the token.
There are two caveats. One is that startup risk remains a factor investors need to consider. The company is less than two years old and the marketplace is increasingly competitive. The second is that the ROI on Nexo tokens is -12 percent; so it has suffered the same declines as other altcoins.
However, the company has developed a naturally-tight supply for its native tokens, all other things being equal. All incentives are for holders to continue holding, and for non-holders to buy. There are 560 million tokens in circulation, out of a total supply of one billion.
While Nexo is not the only player in the game of crypto lending, the addition of a dividends component could make the tokens a unique passive income play. Nexo, one might argue, is bringing sexy back to dividends.