Crypto Lender, NEXO Accused of $10M+ Unjust Liquidations Amid March Crash [UPDATED]

Popular Bulgaria-based cryptocurrency lending and savings platform, Nexo Finance has come under fire for allegedly defrauding its community of users in the aftermath of the massive crypto market decline on March 12 and 13.

The allegations are in respect to liquidations on users’ accounts as a result of some cryptocurrencies losing up to 90% of their value on the day, and also how Nexo is handling its supposed liquidation relief program.

We reported a similar mass liquidation for users of Ethereum-based DeFi solution, MakerDAO.

Diving In

As a crypto lender, Nexo provides a platform that lets users borrow USD while depositing their crypto assets as collateral. 

The platform maintains a loan-to-value ratio as high as 50% loan-to-value ratio, meaning that an individual who wants to borrow $10,000 from Nexo needs to deposit $20,000 in the cryptocurrency used as collateral.

A user could redeem their collateral by paying the loan amount. At the same time, a failure to do so would allow Nexo the right to reclaim the loan amount by claiming the proportionate value of the collateral asset.

Also, as with most crypto-related loan services, Nexo maintains a margin call that is triggered by adverse market volatility such as that which took place on March 12&13.

A FAQ page on their website notes that “if the collateral assets decrease in value significantly, the client will be warned to add more collateral. The client will be notified, and partial automatic loan repayments will only start after the Loan-to-Value increases to 83.3%.”

The company also notes that the client will receive a minimum of three notifications (via SMS and email) before that any liquidations, with the warnings and partially automated loan repayment expected to take place as the Loan-to-Value increases to 71.4%, 74,1%, 76.9%.

The Allegations

In a Livestream and series of blog posts on Fulcrum, David Seaman and other Nexo customers claim that the company had taken advantage of the crypto market downturn to steal customer funds.

The allegations include that, as the value of crypto-assets declined on March 12 & 13, Nexo failed to keep its promise to notify users (at least three times via different channels) before enforcing both automated and manual loan repayments using collateral deposited on the platform.

The lender’s platform was allegedly inaccessible at the peak of the market decline, making it almost impossible for affected customers to have redeemed their account before the liquidations.

In an email response, Nexo acknowledged that SMS and email service experienced a downtime, also saying customers should not have relied on notifications about the status of their collateral assets but should have taken action before the market decline.

Additionally, Nexo, in a supposed liquidation relief program, is asking users to deposit more collateral in crypto assets on the platform to stand a chance of getting back some of the liquidated funds.

In a particular email sent to one of its clients whose $124,592 was liquidated, Nexo is requesting a top-up in the region of 400-450 ETH or 8-10 BTC (appr. $63,000) to drive the customer’s loan to value ratio lower.

Further allegations include a non-disparagement agreement where customers are being asked to agree to delete or not post any comments on social media or the internet to defame Nexo’s business.

For any breaches, the user would have to pay 50,000 British pounds according to the agreement. Users must sign this document to take part in the liquidation relief program.

Meanwhile, Nexo is further alleged to have blocked on social media and stopped responding to email inquiries from some of its most vocal customers that were affected by the supposed unjust liquidation.

Nexo’s Response to the Allegations

Mia Agova, Nexo’s Head of Public Relations, shared the company’s official response to the case, which explained that the March 12-13 crash affected everyone in the crypto space especially as “Bitcoin alone fell 47% intraday.” This, according to Nexo’s statement, also “resulted in liquidations for some of Nexo’s clients, including David Seaman, whom it emerged is behind Fulcrum News.

The statement continued:

Besides being bad for clients, liquidations are also bad for any lender’s loan book.  Managing them efficiently is essential to the financial health of businesses and clients alike, as one of our co-founders, Antoni Trenchev, explains in-depth in his latest op-ed on Cointelegraph.

Nexo has offered remediation options to clients affected by the crash, which we are pleased to say have been very well received. Such an offer was also extended to David Seaman, whom we liquidated in March. Despite an initial positive response and multiple attempts at dialogue, Mr. Seaman passed on our offer, proceeding to threaten and slander Nexo and our employees via social media and his news channel.

Our policy has always been clear  — we strive to provide our customers with the highest level of support and understanding. At the same time, we adhere firmly to our business principles of protecting, on par, the interest of Nexo clients who are earning interest with our product, and the overall interest of the blockchain space.”

Update: This content has been updated to include an official response from Nexo Finance. In an earlier version, we mentioned that Coinfomania reached out to the company for comments on the development.