Bridging the Gap Between Crypto and Traditional Finance

This week, Antoni Trenchev discussed Nexo’s sustainable business model, long-term DeFi goals, and position in today’s financial world with Emanuel Coen of the new, consumer-focused Cryptotesters podcast.

Here are some highlights from the interview:

• With the recent global market volatility, Nexo experienced an influx of gold investors, miners and individual crypto users.
• A total of $8 trillion in cash will enter the economy by the time the anti-crisis measures end, causing inflation, but upping digital assets’ appeal.
• Nexo provides custom OTC credit lines for miners to help them cover expenses — an offering that is especially relevant post-halving.
• The company’s sustainable business model ensures profitable, risk-free management of all operational liquidity from institutional investors.
• Clients can deploy the billionaire’s strategy with Nexo’s tax-efficient Instant Crypto Credit Lines.
• By harnessing crypto’s unique value proposition, Nexo offers inclusive and accessible wealth-creation opportunities.
• Nexo is on a license acquisition crusade, implementing all established regulations and compliance standards.
• Nexo works in synergy with the DeFi space and is headed in the DeFi direction in the long term.

Tune in to the Cryptotesters podcast for the full interview with Antoni via the link below or Spotify, Apple Podcast and Breaker. Scroll down for a transcript of the episode.

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Transcript

Emanuel Coen

What’s up, everyone. It’s Emanuel and you’re listening to Cryptotesters a new podcast focusing on consumer applications in the crypto industry.

Today, I talked to Antoni Trenchev, the CEO of Nexo. Nexo provides crypto-backed loans, which means you can give them your Bitcoin or Ether and receive an instant loan paid out in euros or dollars or other currencies. They’ve processed more than $1.5 billion in loans to date and are growing massively in all metrics. We talk about why crypto-backed loans are so interesting compared to the traditional way of taking out loans, about the fierce competition in the sector and how Nexo stands out, the profiles of their users, the promise of DeFi, decentralized finance, and many other topics. I hope you like it.

I think it’s a very interesting episode, but before I want to thank BitWala for sponsoring the podcast, BitWala is Germany’s crypto flagship company. They provide a European bank account with integrated Bitcoin and Ethereum wallets, which allow you to easily move your money between your crypto wallets and your bank account. They also provide you with a debit card. It makes it even easier to spend your crypto in stores and online. Basically anywhere where MasterCard cards are accepted. Another advantage of the bank account is that your euro deposits are protected up until 100,000 euros. So for those of you who want to manage all of the finances in one app, both fiat and crypto, Bitwala is the way to go. They even have a promo right now. If you live in the European Union and sign up before the 31st of May, you get 35 euros as a welcome gift. You just need to sign up using our special sign up link, which I’ll post in the podcast notes.

Hi, Antoni, glad to have you on the show and talk about what at least seems from the outside one of the fastest growing sectors in the crypto industry, crypto lending. But let’s start with a quick introduction. Who are you and how did you get to found Nexo?

Antoni Trenchev

Sure. Well, thanks for having me on, first of all. My name is Antoni Trenchev and I am the co-founder and managing partner of Nexo, which for those who don’t know anything about us. We are the world’s largest crypto-backed lender. So we have been around for more than two years now, which is a lifetime in crypto. And we have been offering a plethora of different products to crypto lending, to the crypto blockchain space. Most notably, this will be our crypto-backed loans, the very basic concept that you have crypto, you believe it’s going higher rather than selling it at intermediary highs, you borrow against your crypto rather than sell it. And then the second product would be, what we find a unique offering and namely to give investors in the blockchain space, but also beyond, the means to earn interest on their various idle assets or surplus assets. And around that, we are bringing, not only the blockchain space, but more traditional, like FinTech, a suite of tools and offers, which offers you the all-around product structured around digital assets.

Emanuel Coen Cool. Yeah. You just mentioned you have several products, but I guess your first product were crypto credits, probably still the most important product or the flagship products. Can you explain how they work? What are the steps for a user to get such a crypto-backed loan?

Antoni Trenchev

Sure. Just purely the steps they say all good things in life are three. So with us, it’s really three easy steps to get onboarded and to receive your instant credit line with Nexo and it’s a really simple, smooth customer-centric experience. You come to the platform conduct very quick KYC usually it is completed within two minutes. You deposit the crypto asset of your choice. More likely than not, this would be Bitcoin. Once it’s confirmed, that is, with a third-party custodian. we use a couple of different offerings here, but predominantly BitGo you then, as soon as the crypto is secured over there, you get extended an instant credit line, could be in stablecoins, it could be in 45 different fiat currencies, whatever your particular needs are. And you’re good to go.

You can withdraw to your bank, you can spend it almost instantaneously. Uh, usually within a few hours, at the very latest, next day, should be good to go. It truly is the best of both worlds because it allows you to retain the ownership of your crypto assets and hold on to them for longer periods than you would actually be able to, should you have a particular, financial obligation coming up or, you know, something else that would prompt you to sell it under normal circumstances and before Nexo was around. And now you have this possibility of borrowing against your crypto in a very tax-efficient, very quick and swift way so that you access the value of your crypto without actually selling it.

And you know, the beauty of it is that Nexo’s crypto credit lines, they are actually flexible, meaning that if Bitcoin doubles and the price goes up, so does your crypto credit line, [it] gets extended proportionally and this is what Nexo is ultimately all about providing you efficiency to structure your own finances in the most efficient way. And in light with what Satoshi had in mind when he invented Bitcoin. And the whole concept of you being your own bank, doing business on your own terms, we are there to bridge the gap between this very nascent young industry, which might have some shortfallings in terms of user-friendliness, ease of access and on the one hand, you know, the sovereignty that it goes with.

And then, on the other hand, the bridge with traditional finance, fiat currencies, which inevitably we’re going to need for the foreseeable future for various reasons we are this bridge, this gateway between the two.

Emanuel Coen

Yeah, I must say I’m personally also a big fan of this concept of crypto-backed loans. Like if you consider Bitcoin to be an asset, like gold makes total sense to use this asset as a security to get a loan. And unlike gold, you can transfer a Bitcoin to a company like Nexo in a digital way. And you, Nexo, you know that this Bitcoin is not fake because those are the properties of Bitcoin. So you are able to basically instantly give me a credit line. And if you compare this to other assets that have been used as securities before, like gold or even houses and stuff like that, those are like highly local markets. Like gold, I have to walk into a store most likely and get it valued. And with Bitcoin it’s highly liquid you, Nexo, you know that it’s valuable. And I think that’s one aspect of Bitcoin that is very underappreciated. Um, can you maybe talk about who are the users that take crypto-backed loans with Nexo? What are the scenarios where you have noticed that people think it makes sense and come towards you?

Antoni Trenchev

Let’s do that. But just before that, Emanuel, I want to correct you here real quick. With regards to gold. I think Bitcoin and gold are very much alike and we have taken it upon us to devise a product and a solution for the gold bug. All of us at Nexo, or at least the majority here at Nexo, definitely the co-founders. We are gold bug. So we do have a solution for gold. We have been working initially with PAX Gold, which essentially have tokenized gold and now you have ownership of physical gold, which is stowed away in vaults in London. And you can track it. You can see the gold is really there and it has merged with blockchain technology to the point where you know, you have these tokens, which are the digital representation of the gold that is in the vault over there. So you get the best of both worlds. You get the transferability and ease of transferability that has come to be synonymous with cryptocurrencies.

Now with gold and on top of that, where Nexo comes in, you can actually now deposit these tokens representing digitized, gold on the platform and you can get a loan against your gold. So what used to be reserved for the privileged few with the Swiss bank accounts and the gold in the vaults is now accessible to anyone with as little as $1,000. So, you know, we are, as I said, the gateway, bridging the gap, we have, um, found a way to bring, gold into the blockchain space. And there has been tremendous interest, which softly leads us up to answering the question that you ask. What are some of the use cases we are seeing. Lately quite a few gold bugs, people that have bought physical gold, which is represented by, by the various tokens, that provide such a solution and then borrowing against it.

This has obviously been exacerbated by the dramatic market correction that we saw in the traditional financial sectors across equities and bonds and initially commodities though gold has rallied. So we see this newfound interest in gold, so quite a few digital gold bugs if you will, are coming to experiment and explore the offering of Nexo.

We had the halving two weeks ago. So around that time, we had a very huge influx of miners looking for solutions as to how to secure the pricing of their Bitcoin without selling it. You know, we have been very active too provide OTC, that’s over the counter, solutions to some of the larger miners in the form of different options, customized, bespoke tailor-made loans to them so that they can meet there particular needs with a, you know, Bitcoin’s rewards being halved, now they have to come up with more creative ways. Uh, what else?

You’ve got everyday investors who hold some Bitcoin, they believe because of the, inflationary pressures which we are going to see out of this insane money printing machine. We’ve seen more than 6 trillion being pumped into the system. It’s going probably to be, more than eight by the time we’re done with, the anti-crisis measures that have been taken across the world. So we see people who, you know, they might have margin calls on their traditional portfolios. They might have to, house prices going down and they need more collateral. They hold Bitcoin, but they know that Bitcoin is emerging as this sort of a new asset class, digital gold. So they want to hold onto it.

They then discovered that the ultimate way to be able to continue to hold on to an asset that has outperformed any other asset is to borrow against it rather than sell it because if you have some trend following strategies or do believe that the fiat implosion that we’re seeing right now thanks to the central banks is going to continue, then you know Bitcoin is going to continue to rally or at least have that belief. So, anyone, we have institutions, we have miners, we have gold bugs, we have individual investors. Just about anyone who sees the bigger macro picture as we see it and it’s a crypto blockchain space sees it is a client of Nexo and they have been very actively taking out loans these past few months.

Emanuel Coen

That’s really interesting. And I guess the reason miners would take a crypto loan is that they are earning income and something like Bitcoin, but they have operating expenditures in fiat and dollars obviously because they need to pay electricity bills and machines, equipment, employees and at the same time they don’t want to sell the Bitcoin because they believe the asset price will be rising. Is that correct?

Antoni Trenchev

Absolutely. There are a couple of considerations here. First of all, you know, just before, like a month before the halving, or maybe two months, before the halving, we had Bitcoin trade at something like 3,900. So obviously this was actually, in some parts of the world, this was below the actual cost of mining of Bitcoin. So, you know, we have to view it from the mentality of the miners. They knew this is unsustainable, these are low prices. But if you have to pay your electricity or you’ve got to buy new equipment, obviously you have to have fiat money, more likely, I don’t know, a single utilities provider who accepts Bitcoin, but you know, you gotta pay electricity with something. So this was one concern is this temporary bridge financing almost. So that was the thinking during the initial sell off that we saw with Bitcoin during the COVID-induced market correction, which did not initially spare Bitcoin either.

So this is one consideration and then second of all, around the halving you knew that when the reward gets cut, the logical conclusion was that Bitcoin is bound to reach 7–8 thousand and find a, I wanted to say permanently high plateau. The last economist who use the term in the 1920s it was just the day before, the biggest sell off on wall street is three. So you gotta be careful with that, but they knew that this is going to be like, you know, it is going to reach that level and it’s going to at least be sort of a support line coming it down after it. So, you know, there’s, this was also a reason why you would take a loan rather than sell it. And then the angle that increasingly more people, and especially the miners come to realize is with tax. It has been dubbed the billionaire strategy, this concept that it’s much better to borrow against your assets and this is what anyone in Silicon Valley has been doing for the past 30 years.

They borrow against their stock or in our case against digital assets rather than sell it because this does not trigger tax obligations. So you save on tax and if you’re in the US you know this could be anywhere up to 40–44% so half of the pie is gone and borrowing against your assets, whatever it might be, is much more tax-efficient. You can actually write off, I don’t want to give tax advice here, but the repayments, you can actually count them towards your overall tax obligation. It actually gets reduced.

Emanuel Coen

And it’s so nice that this is now available to retail investors through this new asset class that is Bitcoin because I believe, before even if I would own some shares in Facebook or something, I guess it’s hard to obtain a loan against that if I’m just like an average Joe. Is that correct?

Antoni Trenchev

Well, there are some brokers that would offer you loans against your portfolio. But you know with blockchain, with Nexo, as soon as we know you’re not some ill actor who has stolen the Bitcoin. As soon as we know who you are, have a general sense that you’re not, you’re crypto has not been associated with the dark web or you know, certain ransom software for instance, you’re good to go. You don’t need to have a Charles Schwab or a, I dunno, interactive brokers account, which is accessible to, very obviously, to the people in Western Europe and the United States. We don’t have to worry about that. But there’s a whole other type customer potentially coming in and this could be, I don’t know, a person having a hundred bucks somewhere in Africa. They now have access to the same structured products and opportunities that we have grown accustomed to in the West and take for granted. But this is by no means a given for billions and billions of people. And to think this is one of the most exciting value propositions. Crypto as a whole is this idea of inclusiveness across the board. As soon as you have internet, you got an iPhone or not even an iPhone, a smartphone, you have very little barriers in front of you to participate in this Western life wealth creation and even portfolio management.

Emanuel Coen

And you mentioned that you are able to pay out in 45 different currencies in addition to stablecoins that is. How important is it for you to be able to serve customers globally? How, how big of a share in your user base represent, let’s say, countries outside of the EU and the United States?

Antoni Trenchev

Well, that’s a great question and not an easy one to answer. When somebody asks us where your customer is from. And I say everywhere and it’s truly from everywhere because like, you know, with wealth and money, it’s not a bell curve distribution.

The classic example where you can have the tallest person in the world, in the room full of 50 people. And if you average out their height it would still be very, very close to what the average person’s height is and with money and with wealth, it’s very difficult to do the same because if Bill Gates is in the room that might be like a billion people around and they still might have just a fraction of his wealth. So the distribution of our clients, you know, we could have like one major client, I don’t know, from Argentina. And then looking on the map we’ll say, okay, we have X percentage rate of the total client base from Argentina. So it’s a bit perplexing. So we truly have people from everywhere. And it comes back to this idea that there are people who are very early in crypto and they are sitting now on these large piles of, how should I phrase this fiat wealth denominated in Bitcoin.

So, you know, it could very easily distort the picture, but we truly have clients from every corner of the world and sometimes you will be amazed at what a single person can hold in a country you would consider a third world country or whatever and it’s really exciting and it’s really touching and it’s precisely what blockchain and Bitcoin and crypto is all about, is this distribution of assets across the world. There are no limits to what potentially can be achieved. And we see that through the clients of Nexo that it really is so.

Emanuel Coen

Can you talk a bit about what went into the product? Because you mentioned a few things like custody was BitGo amongst others you can pay out in 45 different currencies. I imagine you must also receive credit lines from banks or something. So you’re able to pay out your customers unless you have that on your balance sheet and there’s licenses. Can you talk a bit like what went into the product when you started building this?

Antoni Trenchev

Sure. Well the initially the idea, it was one of the other co-founders’ idea, like the very genesis of Nexo Kosta’s idea. He developed it out of need because he was early on Bitcoin, right? And he was sitting on Bitcoin and he saw essentially the future that this is bound to go much, much higher. Right? If you wanted to leverage that position talking about 2013–2014 where there was no meaningful Bitcoin infrastructure to speak off. So he was looking for essentially a digital pawnshop where he could give his Bitcoin, they give him some type of other currency and he buys more Bitcoin. Turns out there’s nothing like that. So this is how the very basic idea got developed and it’s like, you know, back in the day before me going into Nexo it’s like I was always very protective of the idea. You know, you don’t share a great idea.

Well, the truth of the matter is I have dozens of brilliant ideas and it’s the implementation, the devil’s in the details, in the actual, so I can show you the greatest idea in the world, but if you don’t know how to pull it off. Yeah, then it remains just that, an idea. So we gathered together, started thinking, and you know, our background is in FinTech. We have been in credit facilitation business, in the traditional sense of the word where it’s all fiat, for more than 13 years now. So we knew how to build companies that are internet only. Meaning that there was no physical branches where you come and conduct your businesses, only online. We were very quick to develop the product. If you want to provide customers in 200 jurisdictions the way we do today, it’s not only having the website and great interface and setting up the custody of the payout options. You have to worry about compliance. You have to worry about fraud, you have to worry about licensing. You have to worry about even what a G20 meeting could say about crypto. You know, what the world’s leaders think of it so that you can have this holistic piece. Picture a 3D image, if you will, of what is happening, where is this going? Is the FED going to outlaw it? Are the banks going to continue providing the gateways between fiat and crypto, the on and off ramps? How do I make sure that we can continue providing our customers in 45 different fiat currencies and throughout the world.

So it’s really, really a complicated endeavor. And that’s why we started off a few enthusiastic in the group and we’re now over 90 people and continuing to be on a hiring spree. So it is precisely what you would imagine a traditional financial institution to be is just that those are initially bound and limited to a particular jurisdiction and a market. And with our case we could instantly be a global enterprise in the fullest sense of the word where apart from the blacklisted countries, there’s very few jurisdictions that we don’t serve right now and where we don’t have customers from. So it is what you mentioned. It’s all of the above it’s payment gateway, securing finance at favorable terms so that we could not overburden our customers. It is compliance, it is licensing on a global scale. We are truly on a license acquisition crusade. We have top professionals working on that with law firms around the world. Ensuring continued compliance and just anything you would expect a traditional financial institution to adhere to.

Emanuel Coen

Right. And so the business model in a, in a nutshell, in a very simplified way is that you receive a credit line from a bank and you pass a credit line onto a consumer who has given you Bitcoin as a security. And let’s say you receive money from the bank for 2% and the user pays maybe 5% on the crypto-backed loan, then you pocket 3% as a profit basically. Is that how it works?

Antoni Trenchev

Yes and no. First of all, we did a token sale in 2018 so we were in a position where to borrow from Elon Musk, funding was secured for the initial move. Uh, you know, that was one of the great things and the great opportunistic chances that we had with Nexo, securing funding and the really, really early stage, which is something that apart from the .com bubble in the early 2000s, I don’t think apart from that then the ICO craze of 2017–2018, I don’t think we’ve seen anything like this, you know, securing funding at such an early stage with so little strings attached.

So we did that initially. Obviously we had some liquidity to provide the loans from our own books. Then obviously we have been in talks and we have great partners, traditional financial institutions, which are liquidity providers. And then last but not least, we receive funding from the other products that we have at Nexo which is the ability to earn interest, currently, 8% per year on either fiat currencies of stablecoins. So those obviously when you give them to us, we would then use those plans to extend credit lines to the other parts of the transaction, the crypto-backed borrowers. So in that sense it is what the traditional bank would be doing. You know, having fixed deposits where they receive funds and they pass it on to businesses and individuals it’s just that with us, everything is fully collateralized, which is not something that every crypto lender in the space can claim and go through the trouble of actually researching. You’ll see that some of our competitors, they find with a higher degree of risk where they give out uncollateralized loans on both ends, you know, against crypto but also in fiat. But we just never were comfortable with that, to our risk management models. This is a recipe for disaster and this is why we are different.

Emanuel Coen

I did not know that you conducted a token sale, so you are actually one of the only companies that put that money to good use I guess. Um, yeah. This brings me on to the kind of next question. Um, I have the feeling from the outside that it’s a very competitive sector that you’re in. There are a number of players who are trying to expand aggressively is my feeling. I see ads everywhere and some providers even pay users for making their first deposit. And that makes sense because as you mentioned, it’s a sector with a clear business model and there’s a clear demand for it. So how do you view this market and was it important for you to get this ICO financing maybe also to reach a critical mass quickly?

Antoni Trenchev

Yeah, of course. I mean, having the funds so early on was, was liberating in many ways. We had the means to finance the loans to advertise, if you will, to conduct marketing, to recruit great talent and take the whole thing to the next level to ensure compliance, to be on this license acquisition crusade that I mentioned or that was great. Not to toot my own horn or our own horn here, but less than 13% of all ICO companies ever delivered any product and we delivered the fully working platform a month after the funding round was closed. So that was great in many ways.

But yeah as you rightly pointed out we have to keep our eye on the future and see where the space as such is going and what are the risks, how do we manage it properly, how we do make sure that nobody gets burned. Because as with any sector where there is money to be made, it’s very competitive. You have players and actors coming in every day and as you again, rightly pointed out, some of them are basically gifting money. They’re paying you to come on their platform. And this reminds me of the WeWorks and the Uber’s of this world, which during the, that we have been ever since, uh, 2009 where when equity markets bought them out of think around March, it’s 2009. We have been in continuous upswing across the global markets. It was just a general bull run fueled by cheap money from the central banks. And to me this was like, okay, it will last and go, well as long as the music keeps on playing, but ultimately this is going to end in tears because there’s, it’s just simply unsustainable on a fundamental basis.

It’s simply a recipe for disaster, you can’t have $8 trillion more than yesterday competing for the same amounts of goods, services and hard assets and [for] this not [to] result in inflationary pressures. That just simply doesn’t work. You can build a company around the premise, I’m going to burn millions and even in some cases, billions of dollars and customer acquisition. It depends. I will always get the higher valuation out of the VCs of this world and you know until I’ve crushed any comparable service and then I can turn to profit. To us, this was always bound to be a temporary thing. And I think this is slowly but surely unfolding. If you see how the companies that fuel their models upon this have performed in the recent past. And some of the private finance rounds, I don’t want to necessarily point to particular names, but we had like a company like Monzo in the UK who provide a great product and we love using it.

Having the free card, zero FX, zero ATM fees, zero anything fees. But they recently closed the round of VC, a VC round which brought their evaluation in half from 2 billion to 1 billion. So you can see how this uh, has got us worried. So at Nexo we devised the model that would make sense. We would have an advertising budget in line with what we are actually earning so that it makes sense over the long run and even in bear markets. So this is how we think we will stay competitive for the long run. Having a sustainable business model, not taking not taking on unnecessary risk. And this also goes in line with what I said earlier about, having securitization and collateralization on any type of business we conduct. Best of luck to the guys who think that it will be all good otherwise. But a volatile nascent industry that we have in crypto right now and where we are in the overall business cycle after 10 years of a bull-run, I think the risks are on the downside than on the melt upside and we are trying to conduct our business at Nexo in light of that so that we continue to be profitable even in economically challenging times.

Emanuel Coen

Yep, that makes sense. So you’re all about building a sustainable business. That’s good. Can you talk a bit about the next two token then since you conducted an ICO? What’s the function there?

Antoni Trenchev

Well, a couple of things. There are certain utilities that go in hand with the NEXO Token. You can repay your credit line using the NEXO Token, which gives you a hefty discount on the interest rate. You can bring it down to only 5.9% per year. If you use the NEXO Token, you can borrow against the NEXO Token on the platform securing a credit line, which is secured by the NEXO Token that you hold. We are actually now in the process of restructuring some of the utilities, what we call Utilities 2.0 they are around the corner and I’m confident we will be announcing the ins and outs of it very soon. It’s heavily connected to the Nexo MasterCard. It will give you great perks in line with what a credit card market would expect certain privileges.

Antoni Trenchev

Would that be a launch access or something more convenient and useful during the COVID-19 situation that we had like Netflix subscriptions, et cetera. So it’s going to be an all-around remake of the utilities that we use. Historically the NEXO Token is associated with participation in the financial success of Nexo in the form of dividends. So we pay out 30% of the income that we generate to the token holders in the form of dividends. We are going to provide some clarity here. The community is always anxious to hear when the next round of dividend distribution is going to be. Obviously, with some of the challenging times of the past few months, timelines have shifted somewhat, but we’re going to make a clear announcement here very soon. So these are the basic, functionalities of the NEXO Token staking rewards and utilities and then the income distribution and participation in the financial success of Nexo.

Emanuel Coen

And the card, is that a product that is going to be rolled out globally or one market at a time?

Antoni Trenchev

Well, yeah, unfortunately, there is no such thing as a global rollout of a credit card because the Visas, MasterCards of this world, they have a slightly different business model where Europe would be one market and North America would be another, then Southeast Asia depending on which country counting, would be another market. So our team are very good at what they’re doing and they’re in constant negotiations, renegotiations and development of the card programs in the different regions of the world. So it’s going to be a slower rollout. So it will not be simultaneously for every market that we currently serve with the crypto credit lines. But sooner rather than later, we will have the majority of the markets covered and they will have access to the Nexo Card. But we’ll see whether it’s going to be a MasterCard. The first one in Europe will definitely be a MasterCard, but we’ll see how it goes with the rest of the world.

Emanuel Coen

And the main advantage for a user there is the speed in which they can use the fiat money, right? If I send you one Bitcoin and I get a $5,000 credit line from you and I have a Nexo credit card, I can basically instantly spend that money instead of having to wait for two or three days for bank transfer to settle. Are there other advantages to it?

Antoni Trenchev

Yeah, sure. Two distinctive advantages. One is what you just described, like just the shear efficiency of you getting access to your money. It gets even quicker than a bank deposit. In Europe the separate transfer, depending on which bank they are, there are even instants. Even with a bank, you could potentially, get going in less than an hour. But with the credit line, with the credit card, it’s even quicker because as soon as the crypto is confirmed, you can go to your Starbucks, swipe your card and get your latte. So this is like real-time. This is why it took a little longer to develop because this was a first for the credit card providers themselves. They had never worked on anything like that, so this is obviously a huge advantage.

The second would be that transfer, like what you described, where you withdrew $5,000 for instance to your bank account, this is your credit line’s $5,000. With a credit line you swipe at your local Starbucks, you get your coffee for $5 or whatever the price is of a latte right now and you only pay interest on the $5. You have the available credit line, but you only pay interest on what you actually spent. So it is cost optimization for the client as well.

And then I said that there are two distinct advantages now we’re up to three, probably even more, but the other advantage is that this cart is unique in the sense that yes, you’ve got some crypto credit cards, which when you swipe your card to Starbucks, they sell your crypto at the current market rate and your crypto is gone. You don’t get to profit from Bitcoin continuing to rise. Whereas when you swipe with us, you get extended the credit line, your Bitcoin gets […] you continue to profit on the rise in Bitcoin should it continue to rise. Now this, again to bring you back to the point of the tax-efficiency, is very important because very few people actually realize that when they swipe with the credit card, okay, let’s not talk about Starbucks, but let’s say you’re in an Apple store. You buy a $5,000 iMac. Now that automatically gets, if you’re in New York, 44% more expensive because you sold your crypto, that’s a taxable event. You got to pay capital gains tax all while you were paying for your Mac computer. Whereas with the Nexo credit card, you don’t do that because you take out a loan to pay for your computer and you actually are saving money big time.

Emanuel Coen

Right, and another advantage over, for example, a Coinbase credit card is, like you mentioned, that every time you use your Coinbase card it sells your crypto for fiat, then you pay like a 4% transaction fee on every small purchase. So that it really adds up, I guess. Now we’ve talked about crypto credits, but you also offer a crypto savings account. So users can deposit the stablecoins with you and earn interest on it. So stablecoins that’s I guess, DAI, USDC, Tether, so dollars on the blockchain and often the interest rates that they get with you are higher than with banks. Can you explain what’s the business model there and how you are able to generate yield for your users and bonus points if you can explain that in an easy way, because I know it’s not an easy topic.

Antoni Trenchev

Well, actually it’s not that complicated. You know, we get Tether, DAI, USDC you name it from our customers. We pay them currently 8%. We take that money due to the efficiency of the platform and the fact that Nexo, will be unnecessarily modest here, but we are the only one who, only ones who has designed a product that appeals to the retail. It’s self serving — you come, you log in, you conduct business on your own terms. There’s no one, you know, it’s fully automated. So we have a constant flow and demands for crypto-backed loans. So, we take that stablecoin of yours, and we extend them at 12% to clients who are willing to borrow against their Bitcoin. Well, not only willing, but they’re eager to borrow against their Bitcoin. So we make money on the spread. We borrow at 8, we’ll earn the 12. We are making money on the spread of 4%. It’s really no miracle here. And I think that the best models are the ones that you can explain under 30 seconds and they make sense. If I’m taking longer than that and it doesn’t make sense — it’s an unsustainable model. Going forward I think we’ll see a cleanup, not only in crypto, but generally in business, you’re going to see a clean up or a sweeping of unsustainable business models. So really simple.

Emanuel Coen

Nice explanation. Lastly, to finish, what are your opinions on the decentralized finance space? And the reason I asked this is that I recently saw a transaction on chain where you use the Maker protocol, which is a system, which is in a way a bit similar to Nexo, but in a decentralized way relying only on smart contracts. And you got a DAI loan. So s stablecoin loan with Bitcoin and Maker currently has very low interest rates on loans that are secured with Bitcoin. So, was that a way for Nexo to get cheap liquidity, basically? And yeah, maybe you can answer that and also explain, what’d you think about decentralized finance in general?

Antoni Trenchev

Well, I think that actions speak louder than words, so given that, I think that was the largest single transaction in the history of this particular asset. So, obviously we think very highly of the DeFi space. We work very closely with some of the guys there historically, and you may have heard when last year they had some, I don’t want to say difficulties, but some readjustments and interest rates went up to 24% a year. What was it? We helped some of their — in partnership with them — we helped some of their clients refinance at, the lower Nexo rates, which brought their interest rates which brought down by at least 50%. So we have a long history of working in synergy with the DeFi space. And I think that ultimately, we’re headed there. The future is decentralized finance, but this is not going to happen overnight or swiftly or quickly, or as quickly as we in the blockchain space would like it. There are certain things that are inherently of chain and if you want to get a loan in a fiat currency and not some stablecoin replicating a fiat currency, for whatever reason, this inherently has to be off chain and off DeFi.

So we work with them quite closely. We see the offering for what it is, how it is progressive, how it is useful, but there are some shortcomings, they’re going, they’re here to stay for at least the very near future. So we’re trying to even out those efficiencies. So we work in compliment, not in any type of antagonism with the DeFi space, we, ourselves have views as to how in future make certain parts of the Nexo offering decentralized. But as I said, there are some parts of it that are inherently, or at least for the time being, I don’t want to predict the future, but they off chain, they are off DeFi. And we are there to bridge that gap, which needs bridging, which is the crypto part and the fiat part and the blockchain traditional infrastructure. So we work in great synergies with them and continue to do so. And as a company, which has significant investments tied up in their products, we welcome that on all layers.

Emanuel Coen

Thank you very much. I would love to continue this conversation, but I promised I would let you go after one hour. So, thank you very much for your time, Antoni, and all the best for next time. We can do this again, sometime looking forward.