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YEREVAN (CoinChapter.com) – The infamous Terra implosion left many threats behind for the whole CeFi sector. One of the victims was Celsius, a lending/borrowing platform that filed for bankruptcy in July 2022. Meanwhile, the faulty liquidity ripples continue to go through the sector, and some experts suggest another crypto lender, Nexo, might be next.

Is Nexo going to pull a ‘Celsius 2.0’?

Mike Burgensburg, an author and a crypto’ scam exposer,’ commented on Nexo’s shaky position in a lengthy Twitter thread. The analyst pointed out that according to the state regulators, Nexo is “insolvent without counting NEXO tokens on their balance sheet.”

In detail, on Sep 26, eight states announced individual cease-and-desist orders against Nexo. The regulators claim that the lending platform had been offering various products or financial securities to state residents “illegally” without registering them. Additionally, Nexo allegedly misrepresented the risk associated with those products.

However, the key claim that makes the Nexo case so similar to Celsius is the following: the only asset standing between Nexo and insolvency is their proprietary token, $NEXO.

As of July 31, 2022, Nexo Capital (which conducts the business of Nexo on its website and move application) held 959,089,286 in NEXO tokens, comprising 95.9% of all tokens in existence, and valued those tokens at $682,823,570.

read the official excerpt, provided by Burgensburg.

Also read: ROFL! CEL price bullish after Celsius Network bankruptcy — why?

Why is 96% NEXO on the balance sheet important?

As mentioned, the lending platform holds over 96% of its in-house token, purchased after the initial coin offering in 2018. Celsius had the same picture, directly owning over half of the CEL tokens in existence. The company then added deposits and collateral from customers and ended up owning more than 90% of the tokens.

Why is that a problem? The crypto critic answered the question for Celsius.

This created a massive imbalance between the concentration of $CEL tokens and the liquidity available in markets for $CEL token, making it impossible for Celsius to use their $CEL to patch holes in their leaking financial statements.

said Butgensburg.

If Celsius eventually headed for disaster, Nexo might follow suit since it’s already on the same track.

How Celsius ended up bankrupt?

As CoinChapter reported at the time, Celsius filed for Chapter 11 bankruptcy in July 2022. Many experts agreed that a Chapter 11 filing is safer for investors than a Chapter 7 bankruptcy.

The main difference between the two is that under a Chapter 7 bankruptcy filing, the debtor’s assets are sold off to pay the lenders (creditors). Conversely, in a Chapter 11 filing, the debtor negotiates with creditors to alter the loan terms without having to liquidate assets.

However, the Vermont Department of Financial Regulation (DFR) wasn’t as hopeful. Before the official bankruptcy filing, the agency warned investors that Celsius was “deeply insolvent” and urged them to “proceed with caution,” which sounds familiar to Nexo investors now.

The Department believes Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors. Celsius also lacks a money transmitter license. This means that until recently, Celsius was operating largely without regulatory oversight.

read the July 12 statement.

So, is Nexus next after all?

As previously reported, CeFi platforms are typically closely intertwined, which creates a ‘contagion effect,’ spreading across the sector. Will such contagion hit Nexo next? The company denied the similarities after Celsius made headlines in July.

Nexo published a rebuttal, aiming to calm the investors, and clear its name. Nexo co-founder and Managing Partner Antoni Trenchev commented on the situation as an answer to an insolvency prediction for end-of-year 2022.

Trenchev said that his company only appears to be like its crypto lending competitors, who typically take client funds and either stake them in yield-generating protocols or make what he considers undercollateralized loans. “Nexo is fundamentally different,” said the executive, and he hasn’t had to resort to any of the same measures to stay afloat.

Those measures include freezing or limiting withdrawals, like Celsius, or seeking a revolving line of credit, like BlockFi. Voyager has had to do both.

However, Burgenburg disagrees, calling Nexo out for involvement with fraudulent platforms and other “red flags.” He also asserted that NEXO trading volumes might be even lower than suggested by market aggregators.

The highly questionable MEXC Global exchange claims to host the largest trading pair for $NEXO. We have previously shown that MEXC has multiple ties to a network of fraudulent crypto exchanges registered by a shady Colorado firm.

commented the analyst.

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The post Is NEXO the next ‘Celsius’? Analyst says yes. appeared first on CoinChapter.



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