COINBASE for Crypto has come

[vimothy]

Personally I don't know what it would take for a crash like this though. Crypto has lasted this long, despite several flash crashes, even into this crazy sanctions regime. Of course a bigger crash is always possible.

nexo are obvs risky af. what's their risk capital look like? I dont think it would take a big crash to make them struggle if they're intermediating bw loads of assets

 

[Clinamenic]

Also possible that they took some of the dollar proceeds from their initial sale of NEXO tokens, and put some of those dollars toward the liquidity pool.

 

[vimothy]

I'd guess they are selling some of their proceeds from loan interest to raise dollars, to build a dollar liquidity pool, which could be considered overhead.

but they have dollar liabilities

 

[vimothy]

that's a fixed outgoing

 

[Clinamenic]

nexo are obvs risky af. what's their risk capital look like? I dont think it would take a big crash to make them struggle if they're intermendiating bw loads of assets

The NEXO token is as volatile as many of the other mid-cap tokens, but it has more utility than most. That said, I agree that the whole space experiences risk, just from the volatility alone, yet alone any additional risks particular to business models.

 

[Clinamenic]

but they have dollar liabilities

Yes, and I'd be curious to know what portion of deposits are held in dollars or other fiat. There might be some numbers out there.

 

[vimothy]

it doesnt matter how risky their token is, the question is how risky is their funding

 

[Clinamenic]

it doesnt matter how risky their token is, the question is how risky is their funding

I'd say the two are intertwined to some extent, seeing as the sale of the NEXO token probably accounts for a significant portion of their funding. But beyond that, I'm not familiar with their funding.

 

[Clinamenic]

I'd say the two are intertwined to some extent, seeing as the sale of the NEXO token probably accounts for a significant portion of their funding. But beyond that, I'm not familiar with their funding.

For example, I don't know how much of their funding is off-chain. For many DAOs and crypto projects, its mostly or even entirely on-chain. You can track the token sale and get an almost complete roster of stakeholders. I haven't tried that with the NEXO token, but it can be done.

 

[vimothy]

yeah but we know that they have a need for dollars right

 

[vimothy]

by definition

 

[Clinamenic]

yeah but we know that they have a need for dollars right

They have a use for them, but frankly I don't think they need to have dollar functionality. It does spare users the additional steps of having to send their crypto assets to a different exchange to offramp into fiat bank accounts, but I also think having dollars may add undesirable complexity. Ultimately I'm not sure what to think.

 

[Clinamenic]

Could also be that it was somehow easier to qualify as a bank than as some novel financial institution? Don't know, but there could conceivably be some nuanced regulatory reason that having fiat functionality was deemed worthwhile.

 

[vimothy]

let's say the terms of your loan are that you get dollars for your bitcoin. well, in that case they have to come from somewhere. nexo have to source them from the market.

 

[vimothy]

nexo cant create them from nowhere they must enter into a relationship with another institution

 

[Clinamenic]

let's say the terms of your loan are that you get dollars for your bitcoin. well, in that case they have to come from somewhere. nexo have to source them from the market.

I'd guess they have a pool of dollars at hand, in the form of a liquidity pool, to accommodate anyone who takes out a loan in dollars. Of course, they can only predict demand on the platform so well. If this is the case, and they need more dollars than are available in their liquidity pool, they would likely need to turn to a larger market maker, and sell a surplus of some other asset that isn't expected to experience such immediate demand.

Then once the immediate dollar demand is accounted for, and they get the impression that dollar demand has leveled off in the short term, they may choose to rebalance their liquidity pools based on precedented demand.

Just speculation though. Really I'd like to better understand how major exchanges deal with stuff like this.

 

[Clinamenic]

nexo cant create them from nowhere they must enter into a relationship with another institution

Yeah and I suspect that other institution may be something like a market maker for exchanges and other high-level clients, effectively a second-order market maker, which can accommodate high volume conversions between crypto assets and other crypto assets, and between crypto assets and fiat.

 

[Clinamenic]

I also suspect the issuers behind the big stablecoins, or maybe even some of the bigger exchanges, may be able to provide such high level liquidity.

 

[Clinamenic]

Without such liquidity provision entailing lending, necessarily.

 

[vimothy]

I'd guess they have a pool of dollars at hand, in the form of a liquidity pool, to accommodate anyone who takes out a loan in dollars. Of course, they can only predict demand on the platform so well. If this is the case, and they need more dollars than are available in their liquidity pool, they would likely need to turn to a larger market maker, and sell a surplus of some other asset that isn't expected to experience such immediate demand.

Then once the immediate dollar demand is accounted for, and they get the impression that dollar demand has leveled off in the short term, they may choose to rebalance their liquidity pools based on precedented demand.

Just speculation though. Really I'd like to better understand how major exchanges deal with stuff like this.

but where do the dollars in this "pool" come from? they have to come from somewhere