Earning on crypto has become popular in the last two years. Platforms invite you to deposit your digital assets, and in return, they offer you very attractive APYs.
Platforms like Nexo have received particular attention by offering products that include crypto lending and borrowing, which are innovative ways for users to unlock liquidity from assets they hold and don’t want to sell.
Today, we’ll look at how lending and borrowing work on Nexo. Then, we’ll consider if Nexo or Elitium better suits your earning ambitions.
Let’s get started.
First up: what is Nexo?
Nexo wants to replace traditional banking services using the blockchain. Think lending and borrowing, handled exclusively by technology.
The company launched in 2018 but only really gained traction following the ‘DeFi Summer’ of 2020, which saw the crypto world wake up to the possibilities of decentralized finance (that’s the ‘DeFi’ in DeFi Summer).
In essence, Nexo lets users deposit crypto and earn interest in return — or users can set their crypto aside as collateral to secure a fiat loan.
The setup is like a more flexible version of banking. It harnesses blockchain-powered peer-to-peer networks to deliver on-tap liquidity, all while avoiding the lengthy credit checks associated with loans.
Here’s how the borrowing process works in practice.
How can you secure a loan from Nexo?
Nexo offers a product called collateral-backed loans, which essentially means you can use your cryptocurrency to secure a fiat currency loan.
All you have to do is deposit Bitcoin, Ethereum, or another supported digital asset into your Nexo wallet, and the platform will instantly offer you up to 50% of the asset value in the fiat currency of your choice.
The 50% threshold ensures there should be enough collateral to cover the value of your loan even if the price of the underlying asset drops.
How else can you earn from your assets with Nexo?
Besides loans, Nexo also lets you generate yield from your assets by lending them to borrowers.
To do this, you deposit crypto into your Nexo wallet, and the platform pays you APY, either in the deposited cryptocurrency or in the platform’s native token, NEXO. Think of this like your traditional savings account, just powered by decentralized finance.
This second product is much closer to Elitium’s offering, but with a few small (but important) differences that we’ll cover in a second. And just like Elitium, you can apply a yield multiplier by opting to receive some of your interest in a native cryptocurrency.
Risks of taking a loan from Nexo
If you read our blog on the risks of lending and borrowing on the blockchain, you’ll know that an over-collateralized loan isn’t as safe as it sounds.
Cryptocurrencies are inherently volatile. And a market crash of over 50% — something that’s by no means unheard of in crypto — could quickly erase the buffer and leave you in a position where there’s an insufficient loan-to-value ratio.
Put another way: if you took out a loan of $5,000 against crypto valued at $10,000, but a 51% crash took your crypto to a value of just $4,900, Nexo will sell part of your collateralized assets to bring the ratio back into balance.
This is known as liquidation, which is perhaps the biggest risk of crypto loans, and it’s what’s likely to keep borrowers up at night.
Liquidation risk is why many people avoid crypto loans altogether.
Risks of using Nexo at all
Let’s be straight: Nexo does a great job of keeping users safe.
The platform offers tip-tier insurance and asset custody, so account holders know their funds are secure.
Account-level features like two-factor authentication, biometric identification, and withdrawal confirmations also give users reasons to feel extra comfortable when using the service, but one fact remains.
While the platform offers a high degree of security, there’s next-to-no account-level support, which puts a lot of investors off. More pointedly, it’s not so easy to deposit fiat into the platform, which is another aspect that more traditional investors struggle with.
These are also areas in which Elitium excels, both compared to Nexo specifically and other cryptocurrency platforms in general.
Allow us to explain.
Like private banking on the blockchain
When we founded Elitium in 2018, we quickly learned that many investors were struggling to find an onramp into digital assets.
Simply put — people didn’t trust existing platforms. Why? Because nearly all platforms were using offshore accounts while offering next-to-no user support, so if someone had a query about how to invest or where their money was going, help was hard to come by.
In some ways, this strategy aligns with the ethos of decentralization. These platforms want to remove the middleman.
However, by removing everyone from the money management process, these platforms have raised concerns among certain investors, which is why Elitium has taken a different approach.
We’ve set up our platform to operate like a ‘private bank on the blockchain,’ offering everyone a dedicated account manager.
As a result, everyone gets a personalized service from day one, including:
- A platform walkthrough
- Investment guides and tailored advice
- Round-the-clock support via phone, email, and live chat
Better still, depositing into your Elitium account is as simple as transferring funds to a trusted local bank. You see, we’re fully regulated and licensed in Europe, and we only work with trusted European entities.
So your money never moves through an unregulated bank or touches an unrecognizable offshore account.
Since our soft launch in August, feedback suggests clients value our approach.