Nexo co-founders address recent cease and desist orders from US state regulators
During an AMA, the Nexo co-founders sought to reassure users that its platform is working with regulators to resolve the issues.
Nexo co-founders Antoni Trenchev and Kalin Metodiev hosted an AMA on Oct. 4 in which they addressed recent cease and desist orders issued by several U.S state regulators.
Given the turmoil of the last few months, the pair also tabled questions about the platform’s robustness, seeking to reassure users that insolvency is not in “Nexo’s reality.”
U.S. state regulators issue legal action against Nexo
At the end of September, several U.S. state regulators launched legal action against Nexo over its Earn Interest Products.
California’s Department of Financial Protection and Innovation (DFPI) said its investigations follow similar actions against BlockFi, Voyager Digital, and Celsius. The latter two have filed for bankruptcy.
DFPI Commissioner Clothilde Hewlett commented that Nexo’s earn products are unregistered securities, and she seeks to protect Californians from the risks involved with such offerings.
Responding to an AMA question on how this will affect Nexo, Trenchev explained that the company had opened dialogue with the appropriate federal and state departments.
“Apart from having discussions on the federal level, you also have discussions on the state level with several different state regulators who are asking questions for explanations to supply data, etc. So it is an ongoing process on two pathways which run simultaneously.”
But each body has its own procedures, timelines, and internal dynamics, meaning the path forward is not simple.
Nonetheless, Trenchev added that Nexo has always complied with regulatory mandates, such as scaling down its earn offerings so that existing users could not top up new funds until regulatory clarity is given.
On the issuance of cease and desist orders, Trenchev said he was surprised as the firm had been cooperative and open with regulators before the announcements.
“Why they decided this was necessary, one could have his own thoughts about it.”
In any case, Trenchev revealed that, in his opinion, the regulators want crypto to earn products and have no intention of shutting it down. However, the fallout from recent CeFi bankruptcies has given them a reason to be ultra cautious.
Replying to a question on whether Nexo is the next Celsius and Voyager, Metodiev drew a line between the associations, saying Nexo’s business model is dramatically different from that of Celsius and Voyager.
“we provide an actual service that is based on our technology and based on a sound business model founded into its risk management protocols which are uncompromising.”
Elaborating on the use of “uncompromising,” Metodiev said an example of this was enforcing margin calls during the liquidity unwind, as borrower’s indebtedness exceeded set levels, with no exceptions.
With that, Metodiev commented that “insolvency, bankruptcy are nowhere in Nexo’s reality,” and that the company is working hard to deliver a sustainable future for users.