The new and increasingly popular crypto-backed cash loan service, Nexo, has announced that starting July 1, 2018, the platform will begin accepting deposits of Binance Coin for use as both loan collateral and loan repayment. This is a significant step for both platforms as it potentially allows for crypto investors to be able to get access to cash without needing to sell during bear markets like the one we are in now, and use Binance Coin for doing so.
What is Nexo?
Nexo is a financial services platform that runs on Ethereum. It is, in some ways, similar to Salt Lending. However, Nexo has a few key advantages over Salt, not the least of which is they appear to be nearly fully functional right now. Salt, on the other hand, has been sputtering and has largely failed to do much anything.
So what are crypto-backed cash loans?
Here’s how they usually work. Let’s say that you’re holding crypto assets like bitcoin or Ethereum, but you need cash for some reason. However, you decide that you don’t want to sell your crypto assets, and instead you would prefer to keep them.
With a crypto-backed loan, you sign up for an account at a provider and then deposit your assets there. Once your deposits are in, you can request a cash loan which if approved will be deposited directly into your bank account within a few days.
Credit Scores Not Needed
There are a few reasons why this kind of loan is superior to traditional alternatives.
First, this system does not rely in any way on traditional credit scores that are used by banks and credit card issuers. This is because the loan that is given to you is a secured loan. This means that the lender is not taking on any significant risk by lending to you.
Second, getting a crypto loan does not affect your credit score. In many cases if you were to take out a personal loan from a bank, it would negatively affect your credit score as it would increase the amount of debt you have. Third, this kind of money is what’s known as “hard money”. That being, it could be used towards making a down payment on a car or a house. You could not do that with a credit card or a personal loan from a bank as the banks could clearly see that you already borrowed money from them and are attempting to give it back to them in order to borrow even more.
Finally, as these loans are fully secured (meaning if you fail to repay, the lender still can recover all of their lost value by selling your collateral), they tend to have far superior interest rates to other types of loans, especially if you have average or worse credit.
What’s even more poignant about these kinds of services is that when markets are in a downturn, you may face a circumstance where you are forced to sell your assets at the bottom. This means not only do you have to sell, but you lose all of the value that your assets could have had once the market recovered.
Having the option of getting a crypto loan means that in bad market conditions, you no longer need to sell when it is not favorable to you just because your life circumstances require cash.
A Rundown of Nexo
Now that we know how crypto-backed loans work, let’s take a look at some of the specifics of Nexo’s offering.
Nexo boasts a fully automated lending system. This means that once you have verified your identity, you may deposit collateral assets and then be automatically qualified for a loan instantly. Again, there are no credit checks involved so all that matters is that your ID is verified and your assets are sufficient.
Nexo requires a minimum of $1000 per loan to be issued, so keep this in mind if you just want a small loan for a few hundred dollars. Nexo might not be the right choice for this type of loan.
The annual percentage interest rate (APR) starts at 8% (when using the NEXO tokens as collateral or as repayment) and is capped at 16% APR when not utilizing NEXO Tokens. No minimum loan repayments are required.
Specifically, Nexo tokens can be used as collateral on the loan (in whole, or in part) and can also be used to repay a loan itself. If Nexo is used either as collateral or as a repayment mechanism, then the interest rate cuts to 8%. While this does sound interesting, Nexo tokens are not widely available yet. Currently, they are only available on a handful of exchanges.
In fact, some exchanges, including some decentralized ones like Idex, have delisted Nexo on purpose. The reason why is because Nexo is in fact a security token, and intentionally so.
Nexo tokens are surprisingly a legal, SEC compliant, registered security token. This means they are among the first of this type of token to gain a legitimate security standing. As a security token, Nexo tokens give out dividends to those who hold it, pass an identity check, and deposit their tokens into their Nexo account and not just any Ethereum wallet or exchange.
It would appear that this dividend feature has not been activated yet and payments have not gone out. However, the company states that token holders will receive 30% of the company’s profits as a dividend.
We are also not entirely clear on how often these dividends are paid out. Evidence suggests that it will either be quarterly or monthly. What’s also interesting is that the 30% dividend will be given out equally to all of the tokens that are held in the platform. This means that all tokens that are held outside of the Nexo platform will not qualify for the dividend, and thus their share will be distributed among tokens that are within the platform.
NEXO tokens are currently trading for around $.10 each, with a market cap of just under $54 million.
Binance Tokens and Nexo
Nexo recently held a survey of their users on which ERC-20 asset they would most like to see supported. The winner by a wide margin was Binance BNB tokens. This means that from July 1 onwards, Binance tokens can be used in the same way as Ethereum and bitcoin on the platform. Meaning that it can be used as collateral on cash loans or as a repayment mechanism.
While the two projects are not formally related, the Binance CEO tweeted about it shortly after to say thank you and express his appreciation for the support.
Binance tokens have exploded in recent months and the currency sits with a total market cap of just under $1.6 billion, or around $14 each in today’s market. The tokens are used to pay for various fees on the Binance platform and get discounts on trading fees among other features.
Full Speed Ahead
Ever since Salt Lending announced their idea (and since seem to have mostly fizzled out) a number of players entering the space and are now competing for what could be a multi billion dollar market of crypto-backed cash loans.
For example, Celsius Network, which plans to launch sometime this year, will offer many similar functions as Nexo but with a slightly different arrangement of features. For instance, Celsius requires that you own tokens in order to get loans but does not require you to use them to repay loans in order to get a good interest rate. Further, instead of using a security token to issue dividends, Celsius will offer interest on deposited bitcoin and Ethereum.
Up until now, Salt has not stated that they will offer any form of profit sharing, interest, or dividends to its users. It instead appears to be only for offering cash loans to a very small group of people that live in just a handful of US states that have qualified for lending.
Needless to say, consumers will soon have a lot of choices when it comes to where to get a crypto-backed cash loan.