Many XRP holders scrambled for the exit in the aftermath of the SEC’s recent lawsuit against Ripple Labs, forcing the coin’s price to slump by over 60% within a few months.
During that chaotic market stint, many Nexo users suddenly realized that they could no longer repay their loans on the platform using XRP assets.
Nexo is a crypto lending and borrowing service that currently boasts over $4 billion in assets under management. Its primary product, the NEXO Credit Line, allows users to borrow fiat or stablecoins and then use crypto assets to deposit on the platform as collateral.
The business model lets users unlock liquidity on their crypto assets without selling them. Users can repay their loans using coins they hold outside their Credit Line wallet. They get liquidated if the price of assets they hold on their account falls below a certain threshold (83.3% of the loan value).
Following the announcement of the SEC’s lawsuit against Ripple, Nexo initiated “a temporary suspension of the repayments of Nexo crypto credits and the standard Nexo exchange service related to XRP.”
Nexo said in a statement that the decision to not allow U.S users to repay their loans using XRP was one of the few “necessary actions” it had to take to “handle the situation properly and compliantly, and prevent any negative consequences for our business and clients’ assets.”
But while that decision possibly helped Nexo navigate the situation, it didn’t go down well with a group that now numbers over 100 users. The price of XRP dropped from around $0.45 to $0.21 within some hours, and users who did not deposit other assets to pay back their loans were liquidated as soon as the price reached the 83.3% threshold.
In an email correspondence with Coinfomania, the group leader Nicholas said the victims have around 7M-8M XRP of damages on their spreadsheet and already filed criminal complaints against Nexo with the Internet Crime Complaint Center (IC3) and Bulgaria’s Cybercrime Unit.
Does Nexo’s Terms & Conditions Cover the XRP Liquidation?
In the statement cited earlier, Nexo claims that its decision to halt the use of XRP for loan repayments and the subsequent liquidation of users as the price of XRP dropped sharply was not a violation of their General Terms and Conditions (GTC) for the Crypto Credit Line product.
Nexo mentions that based on its GTC, the liquidated XRP assets belonged to the company. The terms include a clause that the company “acquires ownership of the collateral while the Nexo crypto credit is outstanding.”
Additionally, Nexo claims it could change, update, cancel, suspend, or disable certain Credit Line products’ features without notice to clients and without any liability.
While Nexo claims that its actions were in full compliance with the company’s GTC, affected users argue there are irregularities with Nexo’s GTC and the conditions on which it offers the Credit Line product to customers.
For instance, Nexo wasn’t presumably forced by a regulator or an act of court to suspend XRP trading or repayments for users. Under such conditions, the company could have had the legal right to disable the trading function “without notice.”
The company’s GTC also specifies their obligation to email or contact users via phone if they have to suspend trading for any asset on the platform. The affected victims could have saved their accounts from liquidation if they were notified that the platform had disabled XRP repayments.
Nexo said on Twitter that the decision to disable XRP was based on legal counsel and that the company was evaluating the situation:
Like everyone in the industry, wе’re currently evaluating the SEC vs. Ripple situation. Upon legal counsel we have temporarily put repayments in XRP on hold.
Please note that withdrawals remain unaffected – you can withdraw your XRP at any time.
Thank you for your understanding.— Nexo (@NexoFinance) December 24, 2020
NEXO is yet to respond to a media request from Coinfomania regarding the latest complaints and does not seem to have any remediation plan in place for the affected users.
