How Might Embezzlement Accusations Impact NEXO?

Key Points

• Nexo’s founders were accused of being involved in an embezzlement scheme that stole funds from a children’s health charity.
• Nexo called such claims “ludicrous” and said its accusers were seeking to profit from short positions in a distressed market.
• The platform’s utility token NEXO is so far unfazed but risks a crash to fresh all-time lows in the $0.50s.

What Happened?

Popular crypto borrowing/lending platform Nexo was the subject of a social media firestorm over the weekend. Pseudo-anonymous Twitter analyst and crypto sleuth otteroooo posted a thread on Saturday claiming that the founders of Nexo were involved in an embezzlement scheme that stole money from Bulgarian children’s health charity HelpKarma. According to otteroooo, Nexo’s Bulgarian founders used the funds to buy real estate and on “lavish personal travel”.

otteroooo claimed that the tweet thread had reached over 9 million impressions, prompting a furious response from the Nexo team. Nexo called the allegations “ludicrous” and asked “Why would a company with hundreds of millions in revenues and billions of assets under management, vetted by Fidelity, Mastercard and dozens of regulators ever have to resort to petty theft, let alone from children with medical needs?”. The company even issued otteroooo with a public cease and desist letter.

“Several anonymous Twitter accounts are using lies and distortion in yet another smear campaign against Nexo and profiting from short positions in a distressed market,” Nexo said in a public blog post.

Nexo Next Casualty of the Crypto Winter?

The latest set of accusations against Nexo comes at a time when the crypto industry is still in the throes of a severe downturn. The majority of major global crypto exchanges (barring Binance and FTX) have been slashing their workforces. Meanwhile, amid the crash in cryptocurrency prices, a number of large crypto hedge funds and borrowing/lending platforms have imploded.

The highest-profile of these have been Dubai-based crypto hedge fund Three Arrow Capital and lending platform and Nexo rival Celsius Network. But despite the torrid market conditions, Nexo appears in a strong position. The company immediately offered to buy distressed Celsius assets when the platform first paused withdrawals just over two weeks ago.

Meanwhile, it has also said that it plans a “mass consolidation” of the crypto industry via mergers and acquisitions in the coming months. However, if Nexo users start to lose trust in the Nexo platform amid embezzlement allegations and if they start to suspect that there has been mismanagement of their deposited funds, they may withdraw funds on mass.

That could quickly trigger a liquidity crisis at Nexo and put the company in a similar situation to its ill-fated peer Celsius Network.

How is NEXO Reacting?

Price action in the Nexo platform’s NEXO token has thus far been fairly tame. As of Monday, NEXO/USD is changing hands close to $0.70, well within the recent mid-$0.60s to $0.70s range of the last week or so. NEXO is consolidating in tandem with broader crypto markets as traders weigh up the outlook for inflation (peaking soon as commodity prices fall?), slowing global growth and further Fed (and other central banks) monetary policy tightening.

Despite recent calm, NEXO/USD is still on course to post monthly losses of over 45% and is down over 80% since its record highs at the start of last November above $3.70. The cryptocurrency has been an unsurprising casualty of the crypto winter. Its main utility is that its holders receive more favorable interest rates on the NEXO platform, so with investors de-risking this year and pulling money out of speculative areas of the market (like crypto and DeFi), the token has been in less demand.

NEXO/USD is currently trading about 20% above the record lows it hit earlier this month in the $0.50s. But traders should be aware that should Fear, Uncertainty and Doubt (FUD) take hold regarding Nexo’s founders and embezzlement, triggering further withdrawals of capital from the platform, these lows could easily be taken out. Macro risk, like if inflation stays high and prompts even more aggressive Fed rate hikes, could yet send the entire crypto market crashing further, which would take NEXO with it.